Finding a good stock for investment is an art. If you are here to know the formula to multiply your money quickly and expecting magic which will make you millionaire then you are at wrong place. Yes! There is no formula which works in Share market and can give you guaranteed the big profit. But it’s practice and awareness which can make the difference in avoiding risks and minimizing losses.
“People with shortcut earning mentality always choose intraday trading and ruin their hard earned money. You will find many news channels and websites showing tricks to make huge money in intraday trading but in reality, 90% people only loose. My advice, go for investment rather than gambling.”
As I said earlier in this article, investing in stocks is an art and it improves with your awareness, experience, discipline, and patience. When you buy a stock of any company then you become the partner with that company. When you want to become a partner in any business then what do you look into? Probably future prospect, business plan, company’s goal etc. But when we buy stock, we just buy price because someone told us or saw on the news or read in newspapers but most of the time we don’t actually look into company’s profile and at the end, we make the loss.
As we know that investment in the stock could be a good choice in order to earn big returns but the question is, where to invest? how to pick the good stock? Which stock will give the good return? And to answer these questions I’ve tried to explain some smart ways which could be followed in order to identify the stocks for investment and I can assure that by following below ways with discipline will help in giving good returns.
Please keep in mind that there are two types of investors, Risk Taker and Safe Investor and my points will be more helpful and relevant for Safe Investors.
Buy the stock which you know i.e. always invest in the company which has very straight forward business and its presence can be seen everywhere. Chances of such company’s growth are always high and same will impact your investment growth.
Choose the company which has good brand value i.e. companies that have tremendously-established brands or that have extremely strong emerging brands. We also need to consider the sectors because in some sectors, the concept of “brand” means less than in other areas of the market. Branding, for example, means less in the mining sector than it does in retail. Overall, it is best to stick with preeminent, ubiquitous, and highly-admired brands as well as underweight sectors where these stocks are hard to find or do not exist. When investing in less “brand conscious” sectors, however, stick with the “best of breed” companies and follow the other parts of the strategy highlighted here.
Companies with consistent growth performance are always the good choice because in maximum cases such companies tend to follow the same trend in future. I didn’t say in all cases because it’s not necessary that which never happened in past will not happen in future. But, if you invest in the company which is showing continuous growth since last ten years then the chances of continuing the trend is very high and one can rely on that. I have seen people investing in companies which was draining the investor’s money in past but showing continuous growth or upward movement since 2 years and after investment trend took downward movement again. Therefore, if you are seeing the past performance then “Longer the Time Period Higher is the Accuracy”.
It means that, don’t invest in only one stock or stock in the same sector especially when you are new in the stock market. Try to diversify your portfolio by picking stocks from other sectors. Remember even you are buying stocks from all sectors then also try to pick best stocks from that sector. Don’t buy the price buy the future because companies with strong growth rate tend to follow the growth. If possible, try to invest in mutual fund also along with the stocks for safe investment.
Look for this pattern with emerging brand stocks and try to buy the more established companies as cheap as possible to hold onto for the long haul. Sometimes such stocks change the future of the buyer because some pullback or breakout can multiply your investment in 10 times in 1 or 2 years. But finding such stocks are not that easy because it needs analysis, research, and most importantly patience. I didn’t say it’s not possible, hence don’t feel bad start your own analysis and make the difference.
You might have seen people on business TV channels talking in very technical term which we find difficult to understand. Understanding of some basic technical terms related to share market or stock market helps to choose the profitable stocks and also to understand the company’s fundamental. I’ll share some of the fundamental terms which could be studied and applied to select the best stock for investment.
1. EPS :Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability. Growing EPS value represents company’s profit or growth.
2. Dividend: Companies share some part of the profit with its investors and this profit sharing value called as the dividend. Dividend value is declared per share (e.g. if you are holding 100 shares of any company and it declares the dividend of $1 then you will get $100 as the dividend).Companies declare dividend annually or twice a year depends on company management decision and paying the dividend is not compulsory for the company. It is advisable to invest in stocks which have the consistent healthy dividend-paying history because it indicates company’s consistent growth and you may like to know that the dividend money is totally tax-free in India and it’s beneficial for long term investment.
3.Debt: Companies take debit from the bank or from any industrial financing organizations to run their business and in return to that company pays interest periodically. It is advisable to avoid companies with higher debt value because such companies tend to go in the loss when the market is not favorable & so as the investors. Always try to pick stocks with no or less debt value because thy have the minimum impact of changing market scenario and such stocks have shown consistent growth for the longer time.
4. P/E ratio: It is common practice for investors to use the price-to-earnings ratio (P/E ratio or price multiple) to determine if a company’s stock price is over or undervalued. Companies with a high P/E ratio are typically growth stocks. However, their relatively high multiples do not necessarily mean their stocks are overpriced and not good buys for the long term.
Understanding future prospects are important as part of financials. You can identify the factors that may influence the future performance of a stock. For instance, good monsoons should help stocks in the fertilizer sector. Future prospects of the company can be enhanced or marred by policy decision. For instance, opening up for FDI can have a positive influence in anticipation of increased capital inflows. However, factors like technology changes can have either a positive or adverse impact. Some of the stocks have been badly affected due to changes in technology and non-adaptation to market realities.
“Last but not the least, don’t forget to sell the stocks on time because it is also a skill which comes with experience.”