How to Choose Stocks

Step-by-Step Guide

1. 1

   Step 1: Understand how macro analysis works.

   Macro analysis has its basis in the large (Macro) tendencies observed in the economy.
   
   Your goal is to understand how major forces are affecting the performance of the economy.
   
   Then, base your investment decisions on your findings.
   
   For example, if the economy is performing poorly (inflation and unemployment are high while national output is low), avoid overpaying for stocks and be sure to diversify your stocks.
2. 2

   Step 2: Gather data or access a graph.

   The most important macro indicators include:
   GDP (gross domestic product), CPI (consumer price indices), PPI (producer price indices), unemployment rate, interest rates (Fed Funds, prime rate, etc), inflation rate, and balance of trade.
   
   You can either download the historical data to Excel or access an interactive graph using online tools.Go to the websites of the Bureau of Economic Analysis (http://www.bea.gov/) or the Bureau of Labor Statistics (http://www.bls.gov/) to access the data., Look for the general direction that the numbers are moving in and any patterns that may emerge.
   
   Take into account: the historical data you found, current data, and news.
   
   The website will have a separate series of data already converted to percent for either Year over Year or Quarter over Quarter.
   
   If not, you can determine the percentage of change for an indicator.
   
   For example, divide the nominal GDP (in numbers) of one year by the value from the previous year.
   
   This gives you the GDP growth percentage for Year over Year. , Investing in a broad based stock or stock alternative might be the most convenient with this method of analysis.
   
   Select a group of stocks that reflect the movement of the broader economy and track an index like the Dow Jones Industrial average or S&P
   500.This approach allows you to enjoy the growth of stocks in the US in general without risking all your money on one or just a few stocks.
   
   Understand that macro analysis doesn't specifically help you decide which individual stocks to buy.
   
   Instead, it simply lets you understand the performance of the economy.
   
   For example, you may want to buy stocks when you think the economy will improve and sell when you think it will deteriorate.
3. 3

   Step 3: Observe and interpret the data.

4. 4

   Step 4: Pick your stocks.

Detailed Guide

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