10 Facts You Should Know About Every Stock in Your Portfolio

Owning individual stocks isn't for every investor. Maintaining your own portfolio requires you to pay attention to your stocks and have some broader understanding of what's happening in the stock market.

It's also only worth doing if you're confident you can beat the market or intend to improve your investing skills to be able to do so.

For most investors, the easiest thing to do is just to buy shares of a low-cost index fund and let the market do the work for you. However, if you do own individual stocks, you should have an understanding of the businesses, starting with these 10 facts.

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Of all the qualitative things to know about the stocks you invest in, leadership may be the most important.

At the very least, you should know who the CEO is. It also helps to know what their background is and their general approach to running a business. A good way to get a sense of this is to listen to earnings calls and look for interviews with the CEO. Letters to shareholders, if they exist, are also a good way to get a sense of who the management team is.

It's also a good idea to look at websites like Glassdoor to see what employees think of the company and leadership.

ALSO READ: Top CEOs to Watch in 2022

It's a cliché in investing to say that past performance isn't a guarantee of future returns. That is true, but past performance is correlated with future performance. A stock that has historically done well is more likely to do well than a stock that hasn't. There are a number of other factors at play here, including valuation and macroeconomic trends, and a strong track record doesn't always last.

However, if one of your holdings has historically underperformed the market, you may want to ask why. Is it misunderstood or are you the one misunderstanding the investment case?

You should understand how the companies you invest in make money. While it's easy to know what industry they compete in and what they do in a general sense, that's different from their business model.

Do they sell products directly? Do they make money from advertising? Is it a subscription business or is it dependent on one-time sales? You'll want to know who their customers are as any business is ultimately dependent on serving those customers, adding new ones, and growing existing relationships.

Sometimes the business model is easy to understand, such as a retail business. In other cases, such as with some software companies, it's more difficult.

ALSO READ: Are These 2 Business Models Doomed?

Risks are a key component of any investment case, and it's important to understand the risks that your stocks face.

Those can include anything from environmental to regulatory, competitive, and market risks.

Energy companies, for example, face a number of risks, including the prospect of oil prices falling or environmental regulations that will tip the scales in favor of renewable energy.

Financial companies face interest rate risk, and almost every company faces the risk of being disrupted.

The better you understand the risks of your stocks, the better you'll know how they're exposed to them and when to sell if things go south.

Understanding the competition is necessary to appropriately value your stocks. A business without competition is naturally in a better position than one facing lots of it. There are a number of reasons why a company may not have competition. Alphabet's Google, for example, has a monopoly in search, and that's unlikely to change, at least not without regulatory enforcement. And then there's ShotSpotter, which offers a unique product that alerts law enforcement and public services when gunshots go off.

Conversely, the apparel industry is highly competitive with hundreds of stores and brands available for buying clothes, which makes it difficult to gain a competitive advantage. That may explain why most apparel stocks have struggled to outperform the market.

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Perhaps the most important quality in a stock is its growth rate or growth potential. Fast-growing stocks warrant higher valuations than their slow-growing peers, and it's easy to see why. The price of stocks is based on future cash flows, and growth is the biggest determinate in future cash flows.

If a company isn't growing much, there should be another reason to invest in it, such as dividend income or a low valuation. Over the past decade, many of the best-performing stocks have been high-growth companies, so it's a good idea to include at least some growth stocks in your portfolio.

Growth may be the most important factor in determining future cash flows, but profitability is a close second.

After all, it's not enough for a company to grow its revenue fast, it needs to make profits -- if not now, then at some point in the future.

That's why it's important to understand the company's profit margins or how profitable it can eventually be. If the company isn't profitable today, the business model has to show evidence of scaling and eventually making a profit.

Growth is the easiest way for an unprofitable company to turn profitable.

The one quality that Warren Buffett looks for in all of his investments is an economic moat, or a competitive advantage. Those include an asset like a brand, intellectual property like a patent or proprietary technology, or things like network effects and switching costs that keep customers locked into a certain platform.

Ultimately, a competitive advantage helps a company block out competitors and allows it to consistently deliver long-term profits.

ALSO READ: What Is Competitive Advantage?

The per-share price of a stock tells you nothing without context. What's important to understand is the valuation the price represents, which is based on metrics like the company's earnings, sales, or free cash flow.

Buying or selling a stock purely based on valuation is generally a bad idea, but you should be aware of the valuation to know when a good time to buy or sell a stock is. Comparing a stock's current valuation to its historical average and peer stocks can also be a good indicator of a stock's price relative to its value.

Finally, it's a good idea to understand the addressable market the company is tackling. What is its growth opportunity and how can it get there?

Companies, especially in tech, often share their addressable market. That figure alone isn't necessarily useful. It's important to see it in broader context, including understanding its competition and how much market share it could potentially attain.

Being aware of the market opportunity can help you understand how much growth potential a company has, and it's often an important part of an investing thesis.

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Just as there's no perfect way to pick a stock, there's no perfect list for what to watch for in an individual company.

Investing requires balancing qualitative and quantitative factors, and understanding the potential value of a business relative to the market's expectations.

It's not easy to beat the market, but if that's your goal, you'll need to have a clear understanding of the stocks you own. This list is a good start.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares). The Motley Fool recommends Alphabet (C shares). The Motley Fool has a disclosure policy.