It’s important to understand anything you are thinking of investing in. It’s more than just knowing the difference between a stock and a GIC. You also will want to know details about the investment opportunity itself. Find out more about researching investments.
On this page you’ll find
Why should you research your investment opportunities?
As an investor, it’s crucial to make sure you know exactly what you’re putting your money into. That’s why investors should always look closely at investment opportunities and verify that investing advice or products are from credible, registered sources.
Many people get information online from social media, including information about investing. But social media can be prone to misinformation, or used by finfluencers who are paid to promote certain products. And AI search engine results may not always provide accurate information. There are also many online scams that use AI to make you think an investment opportunity is authentic — but it’s actual fake. So, it’s very important for investors to check that an investment opportunity is real.
Nine ways to research investment opportunities
1. Check registration
It’s always important to check the registration of anyone trying to sell you an investment or give you financial advice. You can search the name of the person or company you’re looking to invest with to see if they are registered to sell investments or give advice.
Registration is a quick and easy step to protect your money. If you don’t see their name on the Canadian Securities Administrator’s national database, be wary about trusting them with your money.
2. Search online for news and reports about a company
When investing in stocks, you become a shareholder of a company. There are many ways you can learn more about companies before you invest in them. Some examples are news releases, annual reports, or even the company website itself. A few minutes of searching and reading can tell you about how the company operates, how long they’ve been in business, and how well they have performed so far. News reports might also tell you more about the public investor sentiment about the company or its sector.
Reading more about a company can help you learn about its track record of financial success, how it’s governed, and what recent changes have happened. If you are considering ESG investing, reading about a company can also help you decide if the investment would align with your values.
3. Start following a market index, or several
Indexes show you how markets are doing on a particular day. You can choose a few indexes to follow on a daily or weekly basis, to get a sense of market trends. This can help you keep informed about whether certain investments, or investments in certain sectors, are more likely to be volatile than others. If one stock you’re interested in is up or down on a particular day, you can pay attention to whether others are affected by similar market swings at the same time.
Getting a sense of market activity in different sectors can also help you get a sense of whether they are a good match to your risk profile.
4. Decide whether you’re more of an active or passive investor
Knowing your investing style matters because it relates to how much time you’re able or interested to spend researching your investments.
Active investors tend to devote time each week to make investing decisions or monitor their portfolio. They may try to buy and sell different assets depending on market activity certain times. Passive investors, by contrast, don’t try to beat the market by active trading, but use passive strategies like matching their portfolio to the composition of a certain index, such as an indexed ETF.
Both active and passive investors tend to use indexes as a benchmark to measure their investing progress
If you know whether you’re more of an active or passive investor, this can help you direct your investing research towards the investments and strategies that are a good fit for you.
5. Read Fund Facts documents
Fund Facts summarize important information about a fund. There are Fund Facts for mutual funds, and ETF Facts for ETFs. You can expect to learn about what the fund is invested in, what the risk rating is for the fund, the fund’s past performance, tax considerations and what fees are associated with investing in the fund.
It’s helpful to read Fund Facts and ETF Facts because you can compare the description of the fund with your own goals as an investor. For example, you can consider whether the risk level of the fund is higher or lower than what you are comfortable with.
6. Look up financial metrics about a company
For stock investors, there are a number of financial metrics that can help you learn about how profitable a company is, and whether or not their share price is overvalued.
Three financial indicators to consider when looking at a company are:
- Price-to-earnings ratio (P/E ratio) – The P/E ratio divides the company’s share price by its earnings per share. If a company has a high P/E ratio, the company’s stock may be overvalued or too expensive. Conversely, a low P/E ratio can indicate that a stock is undervalued. Generally, investors consider a P/E ratio under 10 to be a sign of value, but this benchmark varies by industry. The P/E ratio is also helpful for comparing one company to another.
- Price-to-book value ratio (P/B ratio) – The P/B ratio divides the company’s share price by its book value. This ratio is used by investors looking to identify under-valued companies and avoid those that are over-valued.
- Price-to-sales ratio (P/S ratio) – The P/S ratio divides the company’s share price by its sales price per share. This ratio is used to show how much investors are willing to pay for a share in the current market.
These metrics can be helpful for self-directed or DIY investors who are able to invest time into researching their stock investments.
7. Check the legitimacy of a company’s website before you invest
If you’ve learned about an investment through a text message, social media app, or phone call it’s crucial to check whether it’s from a legitimate investment firm — especially if it’s an unsolicited tip. Fraudsters can use websites that are design to fool you into thinking they are real company.
In many cases, fake investing websites could be used as part of a crypto scam, or a long-haul scam known as pig butchering. The fraudster may first work to gain your trust, and then send you to a website that looks like an investing platform but is actually fake.
Some ways you can check a website are:
- Search online and double-check the address for odd letters or extra hyphens
- Spell check the website for errors
- Compare graphics quality and company logos
- Watch out for unusual payment methods like offshore wire transfers or cryptocurrency
Be cautious of unsolicited investing tips, especially if they’re from someone you don’t know very well.
As fraudsters increasingly adopt artificial intelligence (AI) as part of their scam tactics, fake websites are becoming more sophisticated and be harder to spot. Be on alert for the signs of investment fraud. If you are promised high returns with little or no risk, you feel pressured to buy, and you can’t tell if they’re registered to sell investments, it may be a scam.
8. Use SEDAR+ to look up disclosure documents
Public companies and investment funds in Canada must file disclosure documents with SEDAR+ (the System for Electronic Document Analysis and Retrieval). Disclosure documents report on companies’ activities and financial status, and whether actions like a cease trading order have been taken against a company. You can use SEDAR+ to look up a company or fund to learn more about the status of its operations.
9. Check investor warnings and alerts
The Ontario Securities Commission and other regulators frequently issue investor warnings and alerts to help protect investors. Investor warnings caution the public about individuals or companies that may pose a risk to investors. Investor alerts report on potential harmful activity in progress, such as types of scams.
If you’re considering investing in a company, it’s a good idea to check if the OSC or other regulators have issued an investor warning about them. This could help you avoid investing your money with an unsafe company.
Stay up to date on the latest investor warnings and alerts from these organizations:
Ontario Securities Commission (OSC)
Canadian Securities Administrators (CSA)
Canadian Investment Regulatory Organization (CIRO)
International Organization of Securities Commissions (IOSCO)
What are other ways to be an informed investor?
It’s just as important to know what your own investing personality is like, as it is to research your investments. This includes figuring out things like:
- Your investing goals, and how much time you have to reach them.
- Your risk profile, including how much risk you can handle personally and tolerate financially.
- What kind of behavioural biases you might be prone to, such as overconfidence or herd behaviour.
Learning more about investing takes time, so try setting aside some time each month or week to practice some of these tips.
Summary
There are many ways to do your own investing research that go beyond social media. Try these tips:
- Check registration
- Search online for news and reports about a company
- Start following a market index, or several
- Decide whether you’re more of an active or passive investor
- Read Fund Facts documents
- Look up financial metrics about a company
- Check the legitimacy of a company’s website before you invest
- Use SEDAR+ to look up disclosure documents
- Check Investor warnings and alerts
