August 29, 2012

How to use the Internet to analyze stocks

The famous investor Peter Lynch always said that you should buy shares in companies whose products and services you want to use yourself. If you like Apple's products, why don't you analyze the Apple stock? If you want to read a short summary about Peter Lynch and the methodologies he used to find stocks, you can find one here: Peter Lynch - Beat the stock market with what you already know.

But what are you supposed to do as an average investor if you can't test the products yourself. What if you are living in Europe and are interested in a restaurant company in the US? Travel to the US just to test the food? One other way is to use the Internet to find out if people like the company you would like to invest in.
  1. Search through Twitter. Go to twitter.com/search and write the company name in the search box. Go through as many of the tweets as you can and check what people write about the company. Finding tweets like this is probably a good sign if you are interested in the McDonalds stock: Finding tweets like this could be a bad sign:
  2. Go thorough LinkedIn. Go to linkedin.com and go through the employees of the company you analyze. If key employees have begun to join LinkedIn to post resumes and look for jobs, then that's a bad sign since the employees are unhappy and would like to join other companies. If the employees are quiet on LinkedIn, then that's a good sign. 
  3. Google the name of the CEO of the company and other key employees. Go to google.com and write the name in the search box. Go through the search results and see what they have been doing before joining the company. Maybe you can dig up a few secrets?
  4. Search through blogs. Go to google.com/blogsearch and write the company name in the search box. Go through the results and see what people are writing about the company in their blogs.
  5. Find out if people are searching more and more. Go to google.com/trends and write the company name in the search box. You will now find a trend graph where you can see how many people have searched for the company. If more and more people are searching for the company, then that's a good sign. It could also be a bad sign. What if people are searching for "company x customer service"?
  6. Find out what people are searching for together with the company name. Go to adwords.google.com and write the company name in the search box. You will now find out which words people are using together with the company name. Finding something like, "company x customer service" is probably a bad sign since people are unhappy with the company and are often looking for the customer service to complain.
  7. Are analysts interested in the company? Go to seekingalpha.com and search for the company name. A general rule says that it is a good idea to invest in companies no-one else has any interest in. If you find no articles written by analysts at Seeking Alpha, then that's a good sign. You may also search for the company at other similar services, such as bloomberg.com. The less information you find about the company, the better. Peter Lynch always said: "When I talk to a company that tells me the last analyst showed up three years ago, I can hardly contain my enthusiasm."

Please leave a comment if you have any more suggestions on how to use the Internet to analyze whether a stock is a good investment or not.