What does it mean to DD stocks, and how should you go about it for your next WallStreetBets target?
What does DD mean in the stock market?
In WallStreetBets and the rest of the stock market, DD means "due diligence," or researching a stock before investing. It's a way to be responsible for your investments.
This phrase has become more crucial since the rise of meme stocks. Social media influences many investors, which has led some traders to take on life-threatening losses. As you shouldn't take anyone's claims or predictions as scripture for your personal portfolio, DD remains the key ingredient in any stock analysis.
Liquidity and risk tolerance vary between investors, so you should base your DD on your personal situation.
The general process to DD stocks, explained
When you see someone hyping up a stock on WallStreetBets or elsewhere, pause before you YOLO. The fact of the matter is you do only live once, which means you probably can't afford to lose your life savings.
This pause is crucial. Take some time to explore the stock's historical performance, the company's deeper fundamentals, and even some chart technicalities if you have the understanding.
The important thing is to look outside the speculative upswing the stock may be experiencing at that moment. Meme stocks tend to thrive illogically, so it can be really difficult to predict what's going to happen next. Use your DD to inform yourself about the stock's broader ecosystem and sector, and the market as a whole.
Step by step: How to DD stocks from WallStreetBets
The steps to DDing a stock are as follows:
- Look up the stock's historical performance, going beyond its one- or five-day charts. See how the security has performed over the last quarter, year, five years, or even lifetime. If it seems extremely volatile or the Reddit-induced peak is well above the average market value, you may want to reconsider your investment.
- Take a peek at the company's fundamentals. What was its last earnings report like? Is the company profiting or incurring losses? How is the business positioned in the modern economic landscape? Stay updated on the company's investor relations section on its website or through its ticker symbol on the SEC EDGAR search. Many meme stocks have poor fundamentals and hollow bull runs.
- If you have an understanding of chart technicalities, you can use buy and sell signals to decide whether an investment is right for you. This type of DD can be complex, and many chart patterns aren't proven to accurately predict a stock's performance. Take all parts of your DD with a grain of salt and combine everything you learn for a cohesive approach to investing.
As simple as they sound, these three steps will get you far in stock market DD—with or without WallStreetBets' influence.