How to choose companies to invest in (2024)

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24 April 2024Last Updated:24 April 2024

Eeny, meeny, miny, moe is a childhood favourite, but when it comes to picking stocks, using this selection strategy might not get you the financial results you’re after. So, rather than leaving your wealth-building ambitions to luck and nostalgia-fuelled nursery rhymes, read through what we think you need to think about (and do) when choosing companies to invest in.

Research, research, research

That’s right. When choosing stocks to purchase and companies to invest in, the most important thing is to do your research. You need to research the prevailing economic climate (both locally and internationally) and then dive deep into your sectors of interest. That should then direct you to the companies you could consider investing in, and even then, you need to research these extensively. It’s also good to understand how key indices (like the S&P 500) are moving, as these can be a good reflection of the condition of the market.

Why is research so important? That’s an easy question to answer: research helps you make sound investment decisions so that you get the results you’re aiming for. You work hard for your money, so the last thing you want to do is invest it in companies that are going nowhere slowly (or quickly, for that matter). By knowing what’s happening in the world around you, understanding the (geo)political dynamics at play, and where future innovations and technologies are taking us, you put yourself in a better position to make good money moves.

Shortlist your stocks

We’ve already mentioned the need to research stocks extensively, but it’s so important that it’s worth repeating: take time to research the stocks you’re interested in and be sure to understand how the company is performing.

With Shyft, the money app for the globally minded, you have access to over 800 international stocks. That’s a lot to choose from (#NiceLifeProblems). We’ve established that eeny, meeny, miny, moe is not a sound selection strategy, but deciding to monitor a handful of stocks certainly is. The handy watchlist function in the app helps you do just that, meaning you can track the performance of your selected stocks over 72 hours, seven days, one month, three months and even a year.

Having access to this kind of data is immensely helpful in understanding the value of a stock and whether or not it’s worth investing in.

Remember the fundamentals

While understanding the performance of a company you’re considering investing in is essential, it’s also important that you get to grips with its fundamentals. That means considering if the company is well run and if its values resonate with yours. Do you buy into the CEO’s leadership and are you confident in their executive team? What is the company’s track record? Its strengths and weaknesses (and how it works around these)? Are there any scandals or litigations? What about debt? How do things look on that front? These are the fundamentals we’re talking about.

If you’re wondering about the relevance of this, it’s because investing is about the long term, so you should apply the same mindset to selecting stocks. As investing legend Warren Buffett says: “Buy into a company because you want to own it, not because you want the stock to go up.” Even if the stock wobbles, you’ll be confident in its ability to find its footing because you’re confident in the company’s fundamentals.

Don’t forget to diversify

Tech shares tend to be a firm favourite among investors, but as the saying goes: “Don’t put all your eggs in one basket”. In other words, invest in tech stocks if you so wish, but also in other sectors and industries. That’s diversification at play, and it’s something to keep in mind when choosing companies to invest in. You’ll be grateful you mastered this critical investment principle should the tech sector encounter some hurdles.

That research, research, research we mentioned earlier will help you identify other spaces in which you can play and, in so doing, protect your portfolio from the risks that are inherent to investing.

Some fun and games

As much as choosing the right company to invest in is a serious matter, lest you lose some valuable rands, try to have some fun with it. Explore a bit and don’t be afraid to make cautious investments on random bets. You can always chat to a professional if you are still building on your investment knowledge.

You learn as you go, and mistakes are a part of helping you grow in your investing ability and confidence. That’s one of the advantages of using the Shyft app to invest. It’s user-friendly and makes it easy for you to explore some of the top global shares. Did we mention that you can now start investing in the app from just $1.99 for US stocks and $2.49 for stocks on the London and Frankfurt stock exchanges.

What are you waiting for?

Disclaimer: The views shared are for informational purposes only and do not constitute financial advice. One should always conduct their own research before making a decision and/or seek advice from a professional.