Discover what to know when investing in stocks—for example, a history of dividend payments from well-established businesses is a great starting point

Are you wondering what to know when investing in stocks? The first thing to learn is that high-quality, blue-chip stocks will usually be in a good position to remain profitable during almost any type of economic hardship or downturn. Plus, you usually get paid dividends and earn income while you hold these stocks even if share prices are falling.

But most of all, to show the best long-term results, we think you should stick with our three-part TSI Network investing program (more on this below).

How Successful Investors Get RICH Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor. How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

What to know when investing in stocks: Learn how to think like a portfolio manager so you can make well-informed decisions.

Portfolio managers gather information from companies, industry studies and other sources. Good portfolio managers then try to build portfolios for their clients that make money if things go well, but won’t lose too much if the opinions turn out to be faulty, as often happens.

We do our own stock market research for our newsletters and investment services, and we apply it from a portfolio manager’s perspective. That’s why we advise sticking to mostly well-established companies; they tend to hold on to more value when things go wrong and recover faster.

What to know when investing in stocks: Find out how technical analysis can be useful—but limited—as an investment tool

Also known as charting, technical analysis is a market analysis technique that uses charts of previous stock price movements and trading volumes to help predict future price movements. Technical analysis can be a useful investment tool, but if you rely too heavily on it—or any other single facet of investing—you have little chance of profiting consistently. Focusing too heavily on technical analysis in our opinion is sure to lead you to lose money, in the long term if not in the short. But we’d say the same thing about focusing on p/e ratios, or dividend yields, or the number of patents a company owns.

You need to look at the overall picture, rather than confine your view to your favourite selection of easily accessible statistical information. That’s the trouble with zeroing in on any single facet of investing. With a narrow view, you can get lucky and make a handful of brilliant trades. But to profit consistently in a long investing career, much less make any serious money, you have to take a broad view of the market and economy, you have to learn how to single out stocks that will go up and stay up, and you have to learn to diversify. Many investors are well past age 35 when they make that essential discovery.

The key to profiting from technical analysis is to avoid looking to the pattern on the chart for a prediction of what’s going to happen. Instead, see if the chart seems to support your view of the stock, based on its finances and other fundamentals.

What to know when investing in stocks: Does the company use a growth by acquisition strategy?

A growth by acquisition strategy is inherently risky. It’s a little like buying new stock issues or IPOs.

These acquisitions generally come on the market when it’s a good time to sell. That may not be, and often isn’t, a good time to buy. Insiders and managers at the selling company know a lot more than the buyers about the company and its business strengths and weaknesses.

Some takeovers work out well for the buyers, of course. This doesn’t diminish the inherent risk. More important, risk multiplies as takeovers become a habit.

Takeovers are more likely to succeed when the buyer is already a successful company and is under no pressure to buy anything. That way, the buyer can take its time and wait for a truly attractive, low-risk opportunity to come along.

Successful, well-managed companies can succeed with growth by acquisitions. But they use acquisitions as a tool for pursuing a core business. They do not make acquisitions the core of their business.

Even for those well-managed major companies, a growth-by-acquisition strategy isn’t foolproof, and some of them stumble, and fail. However, if a takeover starts to falter, well-managed companies are likely to cut their losses while there is still some value to salvage.

That’s one more reason why, in our Successful Investor publications and portfolio management service, we focus on high-quality, well-established companies. They make fewer takeover blunders. And as mentioned, when they do make mistakes, they tend to recognize them earlier, and cut their losses before they reach catastrophic levels. 

Our three-part Successful Investor approach is a key part of what to know when investing in stocks

Above all, you can limit your risk with stock investments by sticking with our three-part Successful Investor philosophy:

1. Invest mainly in well-established companies with a history of sales and earnings, if not dividends;
2. Spread your money out across most if not all of the five main economic sectors—Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities;
3. Downplay or avoid stocks in the broker/media limelight. 

Some investors approach investing by trying to time the market. Do you engage in this highly volatile process in an attempt at big returns? 

What are the most important factors for you when deciding whether or not to invest in a stock?