How to stay on top of financial news when investing in stocks

Reading the financial news can help you decide where or where not to invest. Many newspapers, magazines, and Web sites offer great coverage of the financial world. Obviously, the more informed you are, the better, but you don’t have to read everything that’s written. The information explosion in recent years has gone beyond overload, and you can easily spend so much time reading that you have little time left for investing.

The most obvious publications of interest to stock investors are The Wall Street Journal and Investor’s Business Daily. These excellent publications report the news and stock data as of the prior trading day. Some of the more obvious Web sites are MarketWatch (www.marketwatch.com) and Bloomberg (www.bloomberg.com). These Web sites can actually give you news and stock data within 15 to 20 minutes after an event occurs. (Don’t forget the exchanges’ Web sites!)

Figuring out what a company’s up to

Before you invest, you need to know what’s going on with a company. When you read about a company, either from the company’s literature (its annual report, for example) or from media sources, be sure to get answers to some pertinent questions:

Is the company making more net income than it did last year? You want to invest in a company that is growing.
Are the company’s sales greater than they were the year before? Remember, you won’t make money if the company isn’t making money.
Is the company issuing press releases on new products, services, inventions, or business deals? All these achievements indicate a strong, vital company.

Knowing how the company is doing, no matter what’s happening with the general economy, is obviously important.

Discovering what’s new with an industry

As you consider investing in a stock, make it a point to know what’s going on in that company’s industry. If the industry is doing well, your stock is likely to do well, too. But then again, the reverse is also true.

Yes, I have seen investors pick successful stocks in a failing industry, but those cases are exceptional. By and large, it’s easier to succeed with a stock when the entire industry is doing well. As you’re watching the news, reading the financial pages, or viewing financial Web sites, check out the industry to see that it’s strong and dynamic.

Knowing what’s happening with the economy

No matter how well or how poorly the overall economy is performing, you want to stay informed about its general progress. It’s easier for the value of stock to keep going up when the economy is stable or growing. The reverse is also true; if the economy is contracting or declining, the stock has a tougher time keeping its value. Some basic items to keep tabs on include the following:

Gross domestic product (GDP): This is roughly the total value of output for a particular nation, measured in the dollar amount of goods and services. GDP is reported quarterly, and a rising GDP bodes well for your stock. When the GDP is rising 3 percent or more on an annual basis, that’s solid growth. If it rises at more than zero but less than 3 percent, that’s generally considered less than stellar (or mediocre). GDP under zero (or negative) means that the economy is shrinking (heading into recession).

The index of leading economic indicators (LEI): The LEI is a snapshot of a set of economic statistics covering activity that precedes what’s happening in the economy. Each statistic helps you understand the economy in much the same way that barometers (and windows!) help you understand what’s happening with the weather. Economists don’t just look at an individual statistic; they look at a set of statistics to get a more complete picture of what’s happening with the economy.

Seeing what the politicians and government bureaucrats are doing

Being informed about what public officials are doing is vital to your success as a stock investor. Because federal, state, and local governments pass literally thousands of laws every year, monitoring the political landscape is critical to your success. The news media report what the president and Congress are doing, so always ask yourself, “How does a new law, tax, or regulation affect my stock investment?”

Because government actions have a significant effect on your investments, it’s a good idea to see what’s going on. Laws being proposed or enacted by the Federal government can be found through the Thomas legislative search engine, which is run by the Library of Congress (www.loc.gov). Also, some great organizations inform the public about tax laws and their impact, such as the National Taxpayers Union (www.ntu.org).

Checking for trends in society, culture, and entertainment

As odd as it sounds, trends in society, popular culture, and entertainment affect your investments, directly or indirectly. For example, headlines such as “The graying of America — more people than ever before will be senior citizens” give you some important information that can make or break your stock portfolio. With that particular headline, you know that as more and more people age, companies that are well positioned to cater to this growing market’s wants and needs will do well — meaning a successful stock for you. Keep your eyes open to emerging trends in society at large. What trends are evident now? Can you anticipate the wants and needs of tomorrow’s society? Being alert, staying a step ahead of the public, and choosing stock appropriately gives you a profitable edge over other investors. If you own stock in a solid company with growing sales and earnings, other investors eventually notice. As more investors buy up your company’s stocks, you’re rewarded as the stock price increases.