I'm trying to figure out what are the factors of a stock on the stock market you would look at to calculate its probability of profit vs loss.

I'm very new to this, just trying to understand what most people look at in a stock. I understand a stock is influenced by many factors and you need to do your research about the company, country and any social influences to get a good probability.

  • Will Rogers: "Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it." – Pete Becker Jul 15 '17 at 11:13
  • How do you determine if it's a good stock? Yes a stock might be stable now and going up but what determines that it will go up in the long term? Basically would you include PE ratios...etc to determine this? – Jason Jul 15 '17 at 12:08
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    Mob psychology plays a bigger part in a stock's value than any objective or measurable factor. – chepner Jul 15 '17 at 14:19
  • Just look at the charts, if price is on the way up it is good, if price is on the way down - BAD !!! – Victor Jul 16 '17 at 4:24

Knowing the answer to this question is generally not as useful as it may seem. The stock's current price is the consensus of thousands of people who are looking at the many relevant factors (dividend rate, growth prospects, volatility, risk, industry, etc.) that determine its value. A stock's price is the market's valuation of the cash flows it entitles you to in the future. Researching a stock's value means trying to figure out if there is something relevant to these cash flows that the market doesn't know about or has misjudged. Pretty much anything we can list for you here that will affect a stock's price is something the market knows about, so it's not likely to help you know if something is mispriced. Therefore it's not useful to you.

If you are not a true expert on how important the relevant factors are and how the market is reacting to them currently (and often even if you are), then you are essentially guessing. How likely are you to catch something that the thousands of other investors have missed and how likely are you to miss something that other investors have understood? I don't view gambling as inherently evil, but you should be clear and honest with yourself about what you are doing if you are trying to outperform the market.

As people become knowledgeable about and experienced with finance, they try less and less to be the one to find an undervalued stock in their personal portfolio. Instead they seek to hold a fully diversified portfolio with low transactions costs and build wealth in the long term without wasting time and money on the guessing game. My suggestion for you is to transition as quickly as you can to behave like someone who knows a lot about finance.

  • Thank you for this explanation, I understand completely. – Jason Jul 16 '17 at 6:18

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