Financial Freedom | Providing Tax, Saving Money Tips, & Financial Planning Advice

Have you been paying attention to what has taken place in the stock market for the past year? The answer is most likely “yes.” However, just in case you’ve been hiding under a rock for the past 12 months, the market has been up over 65%. This is an amazing number, one that has been based on the optimism of an economic recovery, which, in turn, has been backed by the Federal Reserve and stimulus measures. There’s one thing to keep in mind, though. The Federal Reserve will not be assisting with Mortgage-Backed Securities come April 1, 2010. Therefore, the market will indirectly be forced to stand on its own two feet again. Will it be able to maintain such an amazing run? Probably not. But that shouldn’t matter.

What many people don’t realize is that not all stocks trade with the market. In most cases, stocks move in regards to what its sector is doing. Of course, if there is any individual news, such as earnings, buybacks, bankruptcy, and so on, then that stock might see tremendous swings. And if it’s a market leader, such as a Cisco Systems for technology, then that news has the ability to move an entire sector.

All of the above information should be taken into consideration when you’re watching an economist on CNBC or Bloomberg giving advice. More importantly, it’s imperative that you’re able to tell the good stock tips from the bad ones. There are several ways to go about doing this. The first thing you need to do – after writing down the ticker symbol – is to search that company’s financial information. Why did the economist say this stock price is likely to rise? Is it in a hot sector? Are earnings expected to improve? Is the company buying back shares? Is there insider buying? Has a competitor of theirs taken a fall?

Also look for the following: cash, debt, operating margins, profit margins, operating cash flow, PE ratio, and PEG ratio. While what you find on a message board should usually be taken with a grain of salt, you will sometimes find a few knowledgeable individuals. If they can backup their arguments with facts and data, consider looking into more about what they are saying.

In most cases, you’re best off doing your own due diligence prior to looking around for stock tips help and making a stock selection. That said, there are times when stock tips can make you a boatload of money. All the tips listed above are important; however, the most important factor when deciding to listen to someone or not is to check their track record.