Good research is an important component of profitable investing. The more informed you are, the higher your chances of making good decisions and realising steady returns on your investment.
However, a new study reveals that many investors, particularly novice investors, conduct little to no research before investing. Here’s the lowdown.
[top_pitch]
How many new investors conduct research before investing?
According to a new study conducted by personal finance comparison website finder.com, one in 10 investors in the UK don’t do any research before investing. A third say they do a limited amount before they part with their cash. Only 13% claim to do any comprehensive research before investing.
The situation is worse when it comes to new investors. Seven in 10 (71%) investors who identify as beginners do very little to no research before making an investment. This includes over half of beginner investors (56%) who do a limited amount of research and 5% who do absolutely no research. Only 2% say they do substantial levels of research.
Commenting on these findings, Zoe Stabler, investment writer at Finder, says, “It’s alarming to see a large number of new investors are doing little to no research before making an investment. Without doing any type of research, they are essentially gambling with their money and could have no complaints if they rack up big losses.”
[middle_pitch]
Why is it necessary to do research before investing?
Investing in a particular stock without doing research is like placing a blind bet. Yes, you could get lucky and make some money, but more often than not, you are likely to lose money.
Though it is impossible to completely eliminate risk when investing, you can significantly mitigate it by doing comprehensive research on your investments.
Remember that when you buy a particular stock, you are essentially investing in a business. It is therefore absolutely important to get as much information about how this business is run or operates before you put your money into it.
Ask yourself the following key questions before investing:
- How does the business make money?
- Who is the management and what is their track record?
- What does the business’ performance look like over time? How does this compare with its competitors?
- What market pressures or forces might prevent the growth of this business or cause it to fail?
By finding the answers to these questions, you can increase your accuracy in judging whether a business has good long-term potential, making it a good investment candidate.
Where can investors find information?
There is an abundance of research tools and resources available to investors.
According to Finder, some of the tools and resources that investors are currently using for investing research include:
- Investing news sites (26%)
- General news sites (23%)
- Financial advisers (22%)
However, social media is the most popular source of investment research. The study by Finder found that half of investors in the UK (51%) use social media to help inform them when deciding what to invest in. One in 5 (21%) actually use social media exclusively for their investing research.
There are more drawbacks than upsides when it comes to using social media for investment information. According to Finder’s Zoe Stabler, as an investor, it is important to make sure you are not completely substituting advice from more qualified sources for social media.
But what if you are interested in investing but don’t have the time or inclination to do extensive research? Well, you have options. For example, you can use an investing solutions provider to do most of the legwork for you and manage your investment portfolio for a small fee.
If this sounds like something that might interest you, check out our comparison of some of the top-rated investing solutions providers in the UK.
