Hello friends! in this post, we will talk about one of the most frequently asked questions raised by forum people and that question is “Which Share is Good to Buy?” I have seen my colleagues and friends discussing this question very often but when it comes to the point of which one to go for they lack the expertise. So let’s discuss the same in detail so that we don’t deter ourselves from buying the right stocks at the right time.
The key to success in the stock market is market knowledge and stock analysis. If you pick good stocks, you make money, and if you pick bad stocks, you will have huge losses.
As beginners are always confused about how to select stocks that can provide them with good profits. Here are a few things you should know before you pick your first stock:
- Risk Factors –
Stock investments have traditionally been high-risk, high-return investments. Indeed, in times of favourable economic conditions, the underlying companies perform better and the common shares or shares of those companies increase in value.
Logically, there are no guarantees when investing or trading. Stock prices may drop dramatically in value, but they can also rise and continue their upward trend for years.
Therefore, decide carefully how much capital you are prepared to risk. The proportion of wealth you invest in should also correspond to your strategy.
- Goals and Timeframe –
You should know the tenure of your financial goals before you park your money. As every stock has certain timeframe within which you expect the required returns or else you may incur losses. Your investment strategy will vary based on how long you can hold your money invested.
When investing over the long term, you can try to minimize the risk of price movements.
In addition, through dividends and compounding returns over the long term, you can earn higher returns over a period of time.
Stock Picking Strategies for Beginners in 2022
Once you have the basic idea of what to look for investing, the next step is to deep dive into the process of choosing ideal stocks.
Here are investing strategies beginners can use to get more involved in the stock market:
What a Company Does and How it Makes Money?
Take a detailed look at the company’s product(s) or service(s).
Ensure that you understand the business of the company. Invest in the business rather than in the company. This strategy may help you to understand the future prospects and growth opportunities of a company in a better way. If the business does well, the company will see its stock prices rise.
Do You Know about the Company’s Management?
Before making a decision to invest in a company’s shares, review the company’s management in detail. Leadership plays an important role in the growth and future development of the business.
Find out who is running the company. In particular, you should know who their CEO, CFO, COO and Chief Information Officer are.
Do an in-depth search of their background – where they come from and, more specifically, their education and employment. A management team composed of individuals from completely unrelated industries should raise issues.
What Do You Know About Industry?
In addition to understanding the business in depth, you must also analyze the characteristics of its industry, such as its growth potential. An average business in a fast-growing industry can provide solid returns, while the same business in a failed industry will have the opposite effect.
Therefore, a company’s future prospects are critical to stock investors. Always check how sector growth might affect the company you plan to invest in. Also keep an eye on businesses that are growing above the industry average.
Do not Follow People and Do the Fundamental Research?
This is one of the basic rules of investing in the stock market. Don’t buy a stock guided by a rumour, expert tip, recommendation or some news in air. These may be vested interest behind their origin.
Inexperienced investors may get trapped into bad deals when they invest in stocks on the advice of unauthorized person.
A better approach is to do your own research before you invest.
Analyzing a company’s fundamental data will show you the intrinsic value of the share, as opposed to the value at which it is traded.
If the intrinsic value is more than the current share price, your analysis is showing that the stock is worth more than its price and that it makes sense to buy the stock.
But many investors avoid doing a thorough analysis of stocks. This is a mistake that you must avoid, for even well-known company stocks may perform badly on occasion.
What Debt-to-Equity Ratio Tells Us?
The debt-to-equity ratio tells a company the amount of risk associated with the way its capital structure is set up and run.
It is preferable to invest in companies which have a lower debt-to-equity ratio. Such companies tend to be more stable than those with a higher ratio.
Debt to equity ratio can be calculated by dividing the total liabilities by the total equity of the business.
It can be represented in the form of a formula in the following way
Debt equity ratio = Total debt of the business entity / Total equity of the business entity.
Suppose XYZ company most recent total liabilities is Rs 3,781 crore.
And their total equity is Rs 17,034 crore.
Using our formula gives us a Debt Equity ratio of 0.22.
XYZ Debt Equity Ratio = Rs 3,781 crore / Rs 17,034 crore = 0.22
At the end of the day, as an investor, it’s best to be patient and cautious before choosing shares in your portfolio. Be sure to identify your investment priorities, conduct the necessary research, and follow the instructions above to maximize your chances of successful market outcomes.