How To Make The Best Stock Market Pick

When it comes to the choosing the best stock market pick, Warren Buffett is the king for obvious reasons. He is, after all, widely regarded as the most successful investor in the world with a status in the industry approaching legendary levels. His investing prowess can be attributed to his widely-known philosophy of looking at stocks as a business, of using market's fluctuations to his advantage, and of seeking a margin of safety.

You, too, can enjoy such philosophy in looking for the best stock picks in the market at any time. It will take weeks, if not months and years, of study, hard work and practice before Buffett's philosophy can be applied in your own life but the rewards are, truly, well worth the sacrifices in more ways than one. And the first step to choosing the best stock market pick with almost unerring accuracy is to understand the business of stocks - Buffett's first rule of successful investing.

First, look at the issuing company's past and present performance. Does it meet profit targets, organizational goals and investor expectations? Does its financial status augur well for its future? Do the members of management perform the jobs, responsibilities and functions expected from them?

These questions can be answered by fundamental analysis of the audited financial statements issued by the company to its investors as well as to regulatory agencies like the Securities and Exchange Commission. In fact, such is the importance of fundamental analysis in choosing the most profitable stock market pick that even Warren Buffett will do it.

There are numerous computations necessary to determine if the issuing company is doing well in the financial sense. The most important of these figures are the following:

• Earning per share (EPS) is the measure of the company's profitability and is computed as net income for a certain period divided by the number of outstanding shares at a similar timeframe. Look for companies with EPS of no less than 80 percent. If the company has a good run in the last 5 to 10 years, then it most likely will be profitable in the next 5-10 years, too.
• Price/earnings ratio is the second most important measure in choosing the best stock market pick. It measures the amount of money that investors are willing to pay for every dollar of earnings with the recommended ratio being any figure higher than the prevailing industry average.

Other indicators gathered from fundamental analyses that are of significant importance in looking at stocks as business include the price/earnings to growth ratio (PEG), return on equity (ROE) and return on investments (ROI). Most of these financial indicators must be calculated from 5 to 10 years of the company's performance.

Then, you must analyze the trends in the market in relation to their possible effects on the companies being considered - a process known as technical analysis. You are basically trying to see the bigger picture in which the issuing companies are operating in and then tying all the known information into a cohesive single picture. You should then be able to identify the best stock market pick and you may even be surprised to know that Warren Buffett has picked the same stock, too.