This stresses the need for investors that choose to pick stocks on their own to become acquainted with procedures to value stocks based on fundamental analysis. It is recommended that investors first assess their time horizon and risk tolerance. Equities should typically be bought by those with a long-term time horizon. Long-term would usually be 3 or more years. Markets can be very volatile in the short-term and it is therefore necessary for investors to assume a lengthy time horizon in order to consistently earn positive equity returns.
Equities are also among the riskiest of all securities available to investors.
Earnings are the main indicator that investors use to value a company's stock. Thus, investors that are extremely risk averse will likely stay away from shares of technology companies, considering the wide variance of earnings of tech sector companies. Time horizon and risk tolerance are two important aspects in evaluating the right portfolio for an investor. Once you have determined your time horizon and the level of risk you are willing to accept, you can proceed to identify a group of stocks that will suit your characteristics. Stocks can primarily be classified into categories such as company size, industry or sector and growth prospects.