What is a stock selection criterion?

A stock selection criterion is one specific factor that an investor examines before they decide to trade a given stock. Investors generally consider multiple criteria before entering a trade, including factors regarding that specific stock, the sector in which the company trades, and the overall health of the economy.

Where have you heard about a stock selection criterion?

Any stock-picking advice that you read or watch in the media will back up their recommendations with stock selection criteria. You’ll hear terms like ‘price to earnings per share’, ‘debt to asset ratio’ and ‘price to book value.’ These are criteria which investors factor in before they trade a stock.

What you need to know about a stock selection criterion.

It’s key to develop your own stock selection criteria before actively trading a portfolio of stocks. Seasoned investors might have one crucial factor, or an extensive list of them that they consider before they trade. You may prefer to start with analysing the overall health of the economy and the effect that this has on the sector in which the company trades. Or, you might like to start with a fundamental analysis of the firm’s balance sheet, management personnel and investment record. Either way, creating your own checklist of criteria before investing is a great trading discipline to develop.