How to choose a stock for investment
How to choose a stock for investment
You must become a good market analyst if you want to invest on your own, rather than outsourcing it to a specialist.
You should not buy shares of unprofitable companies or go along with advertisements that talk about minimal risks and enormous growth prospects. A thorough analysis of the company is required. Investors with extensive experience advise careful study of the following indicators:
- Company turnover – this is revenue for a specific period;
- Gross profit – the difference between revenue and the cost of the company’s main product;
- Net profit. Obligatory tax deductions, payment of commissions, and other regulated expenses should be subtracted from net profit;
- The company’s earnings from its main activity. The cost of production and mandatory operating expenses in the process of producing the product is subtracted from the revenue;
- Free Cash Flow (FCF) – Cash balance available to the company after deducting all expenses and asset expansions:
- Earnings Per Share (EPS). To get this figure, a company’s net income is divided by the number of shares. The calculation takes the entire amount of securities that were in circulation for the current year.
- An increase in profit does not always lead to an increase in the value of shares and vice versa. In such a situation, a correct calculation will prevent you from falling for a speculative track of the company’s management.
For the would-be investor in company stock, there are a few additional tips:
- Choose stocks of those companies whose business you understand;
- Study the demand for the company’s goods and services;
- Analyze a company’s financial performance. Medium- and large-sized companies fully report their financial situation for the quarter and year. Anyone can get data on accounting statements;
- Don’t go with the crowd. If an asset suddenly became popular among the masses of investors, do not rush to follow their example and run to buy it. It is necessary once again carefully (with a cool head) to check the statements and all the indicators. Most likely already at this stage, there will be good arguments against such an investment;
- Do not make impulsive decisions. At a competent investor in the first place is a dry calculation. You do not need to react to high-profile financial news, rushing headlong into the firing line;
- Who owns the controlling stake? In what ratio are the shares distributed among investors?
Beginning investors can avoid common mistakes and waste time with these tips. Take care of your investment before you invest it.
How to earn in stocks
- Receive dividends on long-term holdings;
- Buy shares cheaper and sell them at a higher price;
- Make money when the price goes down:
Experts recommend following the main rules of proper investing:
- Formulate a goal. Put your desired income or percentage profit range into your plan. When making trades, later on, the plan you made earlier will help in revising your chosen strategies. It will be good if you write down the plan;
- Diversify your portfolio, which will help you reduce possible risks. Form a portfolio of securities from several assets with different yields, terms, designated risks. That way a failure in one direction won’t completely undermine your endeavors. The rule of not putting all your eggs in one basket works well here;
- Be flexible as the economic situation changes. The world of finance and brokerage trading often brings surprises. You need to be able to quickly revise your investment portfolio management policy;
- Intuition has no place here! Make decisions based on thorough analysis, not on emotion or flipping a coin. In the beginning, it will be useful to use the services of a financial advisor;
- Constantly monitor the movement of your assets. The outlook for the stocks in your investment portfolio is fickle. It is not enough to just buy them and think about nothing else. Monitor the situation;
- Keep detailed statistics on changes that are accounted for automatically in your app;
- Follow the news and analyze the current situation. See the stock quotes in real-time. Analyze other’s mistakes and the most successful deals.
Pursuing your objectives, paying attention to all changing circumstances, and being flexible and decisive are likely to lead you to success!