Investment is time and energy spent in the hope of future benefits actualized within a specified date or time frame.
Just like everything else in the market, investment also requires a lot of precision and research before delving into it fully.
For those of us who are new to the concept of investment, it might seem a little overwhelming at the first go.
How do you begin?
What are the rules to succeed here?
Am I making the right call?
These questions arise amongst all of us during the initial years.
To ease your mind, let’s look at 5 positive tips to skillful investing in today’s global market.
1. Be Committed to Your Goals
Begin with a well outlined plan marking out your expectations from the market.
What are your goals?
What kind of stocks do you want to invest in?
This would prepare you regarding the need to understand a company’s basic fundamentals, like, sales, net profit, margins, etc.
You must remember to study market movements keeping in mind what your primary goals as an investor are.
Try to keep out sentiments from your investment plans as they play a major role in driving stock prices in the market as they are driven by expectations of what will happen in the future.
2. Have a Clear Time-Zone in Mind
Think like a company shareholder, give your investments time to grow.
Enter the markets with realistic return expectations, and not outrageous ones.
Remember that time is the best antidote to risk: the longer your investment horizon, the lower the volatility of returns.
3. Keep Emotions at Bay
This one’s going to be repetitive.
As mentioned before, it it important to keep sentiments out of the equation while dealing with the stock market since it can alter the course of the price movements.
Don’t feel ecstatic when the markets surge or get depressed when they plumb new lows.
Even if you develop a well-researched, diversified portfolio and hold it for the long term, inevitably some of your stock holdings might not fare as you had expected them to.
When that happens, react proactively on the basis of your research and intellect, rather than emotions.
4. Be prepared to interpret financial data
While institutional investors have access to expensive databases, you will have to depend on publicly-available information.
For those of you who are beginners, methods to interpret Quarterly and Annual reports are available on our website : http://stockmarketsignals.com/blog/
There are detailed reports on various tips and quirks associated with the ways of the stock market.
Shareholding patterns are available online on NSE/BSE websites.
Scout for more information in the media, and on our website http://stockmarketsignals.com/reports/ for detailed reports on stock investment related queries.
5. Careful Market Analysis
“Analyse” the company with the same level of rigor as you would if you were the owner.
Initially stick to sectors that you know best.
Compare a company’s ratios with the index and industry historical averages.
Look for the following ratio-based characteristics in a stock you are keen on: low Price Earnings, low Price to Book Value, high dividend yield, low debt to equity ratio, etc.
With the markets split between good but overvalued stocks and poor but undervalued ones, here are a few ratios you should look up before you buy.”
Source : www.investopedia.com
a. Price To Earnings Ratio
This is the most commonly used ratio in stock trading.
It compares the price of a stock to the company’s earning per share (EPS).
The EPS can be either for the past four quarters (historical or trailing PE) or for the coming four quarters (forward PE).
b. Price To Book Value Ratio
This ratio compares the price of a stock with its book value. What is this book value?
Book value can be defined as the net value of the company’s total assets minus its liabilities.
To put it more simply it is what shareholders will be left with if the company goes bankrupt.
c. Price To Sales Ratio
This ratio compares the price of a stock to the revenue earned per share.
The revenue for the past four quarters is used in this ratio calculation.
d. Debt-To-Equity Ratio
It measures a company’s leverage by comparing its debt with its equity base.
The ratio indicates the proportion of the company’s assets that are being financed through debt.
e. Asset Turnover Ratio
The ratio measures the sales generated for every rupee worth of assets.
It shows a firm’s efficiency in using its assets to generate revenue.
Beyond all this, let’s remember that monitoring several stocks is a difficult task.
So, it is better to keep a specific number of stocks in mind while monitoring them.
If derived from diverse sectors, that many stocks offer adequate diversification.
Monitor your stocks’ fundamentals and valuations at least once every quarter.
Sell only to meet a financial obligation, to re balance, when fundamentals deteriorate, or when the stock becomes overvalued.
Also, sell if you can replace one with a better option.
More importantly, don’t hesitate to go back to the basics if you find yourself stuck somewhere.
The most difficult part about investing is that we are trying to put forth information regarding things that are yet to happen.
The only reason why we can attempt to predict such information is through careful study of past data which could indicate how things in the future could pan out for you.
Nevertheless, the wise thing to do is to base a decision on future potential rather than on what has already happened in the past.