Obviously every one of us who are interested in stocks wants to make money.  But that objective will be successful only if follow the right strategies. Because strategies for two persons could be totally different and both of them could still be successful or vice versa in achieving their goals. For example if we compare a recently retired man with a twenty four year old school graduate with his first job, their strategies could be different primarily due to the risk involved. The younger person can take more risk and go for early-stage industries with high revenue growth and smaller market capitalization where as the retired person can not afford risk and should be looking to get into mature industries with low or no growth companies and with larger market capitalization. His primary goal will be to ensure that his savings remain in tact so that it can last for remaining life.  As we can see completely opposite strategies could still help achieve their respective goals. But even if we have our priorities defined we still have vast amount of information to go through before we can choose a particular stock for our portfolio.

    The investors use what is called “A Top-Down approach to Investing”. The first step under this is to determine the health of the world economy. We need to look at the GDP for developed as well as emerging economies. Usually the emerging economies often score better in terms of numbers. For example right now India, China and Brazil are three emerging economies which are of special interests to the investors. We should also consider other factors like political instability, war like situation etc. because these factors will ultimately affect the legislation and economy of that particular country and therefore the stocks of the companies. Once we have decided upon the region we are interested in based upon the health of the economy we need to analyze whether the stock market in that region is following upward trend or not. This could be possible by analyzing the charts of the stock exchange index for a particular country. This way we should be able to make up our mind on the countries we want to invest in. This will help us make diversification decisions. We also need to analyze how U.S market is doing. This could be possible by analyzing interest rates, inflation and employment. Finally we must analyze US stock market indexes like NASDAQ and S&P 500. This will give the current picture of the stocks of the companies in the US or listed in this stock exchange. Ratios like price-to-earnings, price-to-sales and dividend yields will help us determine the fundamentals of the market. These were macro analysis which will help us with our asset allocation.

    But in order to decide upon specific investments like stocks of exchange traded funds we must dig deeper also called as micro analysis. During this process we will determine pros and cons for specific sectors. We must decide the long term prospect of specific sector. For example currently renewable source of energy , construction sectors etc. were a few of the key promises as part of Obama’s agenda so we can have a certain amount of confidence that prospect seems to be bright in these sectors due to the government focus in these sectors. Bio technology is another area of possible bright future. Contrary to these we can say that it will not be wise to invest in financial sector at least for now. This will help us focus on the companies we need to invest in and companies we want to avoid. We should also do our best research by reading as much as we can about the company or the financial instruments we are interested in. For example financial statements are the good place to find information about a company of the interest. For mutual funds we must research by reading their prospectus thoroughly. There are several online reliable resources like the Wall street Journal online information. Yahoo finance also provide great piece of information. There are also television programs specifically focusing on financial sector. Of course there are several companies like Edward Jones whose financial analysts can help them with the advice and provide paid financial services.