If you have recently begun your investing journey, we’ve got to tell you; loads of learning is destined your way. Picking the right stocks is a rather tricky task. You could either end up blowing up away all that you invest or make an amount you could only dream about.
Does that make investing in stocks more of a gamble?
Well, it depends on your approach to it. If you pick a stock strategically, it’s not a gamble. It’s an informed decision, a business risk. But if you go with the flow, trust opinions, you’re in for a gamble.
As seasoned analysts of the market, we would never advise you to be gambling your hard-earned money. Instead, we very much want you to invest your money justly and carefully.
On that particular note, here is a complete guide on how to pick a stock. Note that we are NOT going to define a standard formula here. For a market so diverse, it’s almost impossible.
We are going to highlight the best practices and attributes to attune to yourself. So, you opt for moves that are custom and hence most profitable to your interests.
Let’s get to it, now!
Traits of Smart Investors
As promised earlier, before we can implement the best practices, we need to instill some approaches and habits of smart investors. So here are a few aspects you need to align your focus to:
Your stocks are not going to make you rich overnight. You will fall a couple of times and struggle to make sense of the market trends a thousand times.
But trust us, it’s not your fault. Do not think as if this is not your cup of tea. Everything is your cup of tea, should you be willing to endure the hardships involved. Just make sure you keep yourself from giving up.
Now, patience does not only mean waiting for the results to surface. Patience is also involved in making the right decisions. Your calculations, analysis, and observation of the market will take time. Do not rush. Do not let yourself fall into the belief that you’re getting late. You are not. You are only taking your time to pick the right stock and make an effective move.
Be Curious and Humble
Even once you start getting hits and begin reaping results you dreamt of, keep yourself thirsty for more knowledge. This is how it works in the stock market. The more you know, the more you grow.
And the interesting part is the things to know keep on changing. The market trends keep on evolving and changing. Thus, demanding constant learning.
With that said, never be too proud and too confident of your moves. What appears on the surface may not exactly be the case. Hence, do your research on the roots.
How exactly? Allow us to explain that better in the section below.
Best Practices for New Investors
Now, how can you pick the right stock?
Well, you can only do that if you abide by the following investing principles:
1. Always Know Your Goals
Generally, there are three kinds of approaches in stock investments:
- Stable stocks for extra income
- Promising stocks for portfolio growth
- Predictable stocks for capital preservation
People interested in stocks for additional income should invest in companies with good dividend yields. Those looking for some recognition and growth in the industry should invest in younger companies that promise great revenue but minimal stability. Those who wish to preserve their capital would invest in steady, reliable companies with predictable stocks.
You ought to know your goal before investing to achieve your desired results.
2. Evaluate Company Vision before Investing
Okay, so here’s a super common misconception: investing in the trending company of the day will give you the best results. For example, if TikTok has taken the internet by storm, we can see several queries like:
- Can you buy TikTok Stock?
- Is TikTok Stock giving the best results in 2021?
- Should I switch to TikTok investments?
Well, no. Not really.
Just because TikTok has made it to daily doesn’t mean you could jump right in and claim your share in the business.
Why? First, without analyzing the metrics, you cannot assess the success rate of a company.
So, evaluate a company thoroughly before you invest. Analyze its legal standing, profit margin, business growth, mission, and vision. Also, always make use of reliable stock analytics tools before taking the final decision.
3. Evaluate Stock Prices
Once you got your list narrowed down to the final list of companies you wish to invest in, start analyzing the stock prices. You can do that by evaluating:
- Price to Earnings Ratio
- Discounted Cash Flow Modeling
- Price to Sales Ratio
- Dividend Yield
Once that gives you a final product to buy, ensure you buy the stock with a safety margin. Ten percent is good for steady companies, and around 30 percent suits best for unpredictable companies. It protects you from big losses.
Summing up, picking a stock is tricky but not something impossible. With the right amount of patience and calculations, you can hit the sweet spot of your stocks career in no time. Just make sure you don’t fall prey to the common misleading concepts and do not rush your decisions. Lastly, always keep track of the stock market, whether you’re active or inactive. You need not be investing now and then, but you ought to keep yourself well-informed to avoid any damages to your investments. Good luck!
Arslan Hassan is an electrical engineer with a passion for writing, designing, and anything tech-related. His educational background in the technical field has given him the edge to write on many topics. He occasionally writes blog articles for Dynamologic Solutions, A software development company.