So, you have finally made your mind to buy stocks. Great! This is an ideal time to invest in the long run. If you have surplus money and the right mindset, trading might be the right thing for you. But how will you do it? What is the right stock to buy? What are the things to look for when you are trading? We will have a look at some of the key things today.
Do Proper Homework Before Buying Stock
When you are finally trying your hand at investing, it is vital to do your research first. Your goal should be finding a good value and holding onto an asset for a while. The biggest mistake people make when they think the stock market is a place to earn quick cash. Contrary to the popular myth, trading is NOT gambling.
But before you put full faith in a company, thorough research is a must. It is not a simple buy – you are becoming a shareholder of a company. So, investors should always do their proper analysis before becoming a shareholder of a company. Be aware of the below-mentioned things before investing your hard-earned cash.
How Should You Pick A Stock?
According to the trading experts, there are three essential steps to follow-
- Decide in advance what do you want your investment portfolio to achieve and stick to it
- Stay aware of the daily trades
- Use this information, knowledge, and goals to make informed decisions while buying or selling stocks.
Keep Your Eyes And Ears Open
It’s essential to keep up with what’s happening in the market. Reading the financial news and keeping up with the informative industry blogs is a must.
What Is The Earning Growth Of A Company?
Suppose you have selected a company named ‘A’. Now, look for A’s earning growth. Have the earnings increased over time? If yes, it indicates that the company is doing something right. Even small but regular improvement over a long time is a positive indicator.
When you analyze a stock’s potentiality, you need to understand how the business works and how valuable the future cash flow is. It also involves evaluating the services/products, cost structure, and target competitors. In short, you have to determine a company’s market opportunity, competitive advantages, and the sustainability of cash flows.
Per-Share Growth Is More Important Than Corporate Growth
Think of your investment as a large pizza. Would you prefer one share of the ten slices or one share of the six slices? The pizza only split into eight slices will have larger slices with more toppings and cheese.
The same logic applies to a business too. As a shareholder, you must look at whether each investor’s stake in the company is bigger or not! Each share must represent a greater percentage of ownership when split into fewer pieces. That is why every investor will also grow along with the company.
Conclusion
Last but not the least, buy a share to hold it for the next ten years or at least five years. This is easier said than done when the market goes through uncertain circumstances. But as per the trading experts, you must not panic and wait it out as long as possible.
