In his article Strategies for Stock Selection, he put forward four factors to look at: markets; economic cycle; obvious risks; and company (How to Choose Stock 2006).
Foremost in his recommendations is buying stocks that an investor is not only acquainted with but knowledgeable in. Peter Lynch advises that an investor should buy the stock of a company whose products are purchased by him and his social circle. He should asses if this product will continue to become popular in the future. He cautioned investors that if they can't explain what a company is doing, they should not invest its stocks. In the process of knowing a company, it is imperative that an investor also looks at the current financial position of the company by looking at the different aspects of the business with the help of financial ratios. These ratios reflect not only reflect the financial situation of a business entity but also shows the company's strengths and weaknesses in terms of numbers. Aside from gaining a deep insight on the company's operation and current financial position, an investor should also look at the company's historical performance in terms of financial ratios and stock prices. To maximize the investment profitability, return of a stock should be compared with other stocks in the same industry (How to Choose Stock 2006).
This report is an analysis of the profitability of holding Ted Baker PLC's stocks as ...Show more