Picking out the right stock for your portfolio is a process that is heavily involved and takes a lot of time and research. You cannot just go by what big name talk show hosts say and blindly follow their suggestions. The reason for this is because you and millions of other people are probably listening to them and if a million people suddenly buy a stock the price will skyrocket and it will hurt you in the short and long run. I want to give you some guidelines on how to pick the right stock, but I will not be making any recommendations like what I invest in or what will do well.
First the most important thing to do before you ever invest in the stock market is do a risk tolerance assessment. Find out how much risk you can take on and handle both with your financial situation and mental ability to hold on tight when the ride gets rough. If you are young you probably have a higher risk tolerance because you have time and less commitments. If you are older you don't want to be investing in high risk stocks that take time to smooth out because you don't have time.
With that being said you look for stocks based on your risk tolerance to add to your portfolio. If you are young, look for companies that have a great hot new product that is sure to succeed after reading news reports. Google finance and other places like Motley Fool have news articles and analysis on most stocks that help you determine new companies. As to be expected new companies will be high risk because there isn't a guarantee that they will succeed and stay in business, so if you are young and see potential and good signs coming from their leadership and business plan then be sure to get in on them so if they do take off you will be making money for years to come. If they do bomb out you don't put all your eggs in one basket, and if they did fail you can ride out that turbulence of the market.
If you are older and looking for safer investments, then look for companies that have healthy ROI and low debt to equity ratios. Companies that have been paying dividends for a long time show stability and security; I don't foresee Coca Cola going anywhere anytime soon, so you can make your assessment based on this and choose your stocks wisely. Go for companies that are established and offer products that will never go away which will only solidify their standing and security in society.
Type of investing
Now that you know your risk tolerance and what kind of stocks you should be looking for, now you have to determine the type of investing you want to do. If you want to be a growth stock investor then you will be looking for companies that are new and growing fast to ride that wave upwards. If you want to be a value stock investor you want to look for well established companies that add value to your portfolio with stable stock prices you can continually add into. If you want to be a dividend investor look for stocks that have stable, continual dividends and invest in those so you can either reinvest the dividend for more stock or cash out to live off of.
Determining what kind of investor you are will determine the stocks you invest in for your portfolio. Don't make the huge mistake of just blindly following others advice; generally it's not good. The reason for this is because they are just trying to make money from you (financial advisors) or they are widely followed and everyone jumps on board (talk shows). Do your own research and find stocks that fit your criteria. If a company has a very high debt figure on their sheet, look around carefully as to why that is and if it's good debt or bad debt. Some companies can have good debt because they are vastly expanding to meet huge demands and this can actually be a good sign. Other companies can have bad debt because they aren't making money and just trying to stay afloat, in which you want to pass by them like a fleeting thought.
Diversification is often touted as the best security blanket you can have in stock investing and for good reason too. If you find a hot new stock like say...Enron that looks great and can make you lots of money and you put all your money in that one stock because you have dollar signs in your eyes, well you see what happened to them. It doesn't matter how secure of a company they are, you never want all of your money going into one stock. If you are a value investor, find 10-15 companies to invest in so this way you have spread your risk among multiple companies instead of just one. If you invest in dividend companies, know that a company can revoke that at any time they wish if they need to keep money internally for growth so invest in a lot of different companies that offer dividends.
This is something that should be done without a second thought. People have gotten burned by the stock market and seen their portfolios hit hard when they follow the latest, greatest trend and put all their wealth into it thinking they can make a quick buck. Unless you take part in illegal activities, you aren't making a quick buck in the stock market. Invest for the long term and diversify among many different stocks and you are sure to succeed.
While it may not look like much, this is the three things everyone needs to do to be a successful investor. Obviously you can dive in and become much more advanced of a trader and investor in stocks and boost your portfolio, but for the novice this is all I did and I've seen great success. I have seen some of my stocks explode since the 2008 crash to over 1300% because I bought them at a steal, while other companies are down over 350% because they were risky investments that I went for knowing that they may belly up but it was worth a shot. Because I diversified my stock investment portfolio I was able to take some risks and still see gains because my safer investments and some of my risks performed well which enabled me to take others risks. Study your stocks carefully and never invest on an emotional high, as this is just like buying a product in a store. Always sleep on it and let the emotions settle down and make a good decision based on facts and not emotions and you will succeed.