How to pick your stocks
Beginner Stock Market Investing, Stock Market Investing Advice, Stock Market Investing Strategies
Many people choose to invest in the stock market because they regard this as the best way to multiply their capital. However, the road to success lies in minimizing the risk while you are investing and the best way to do this is to pick your stocks carefully so that you can avoid bad stocks while investing in stocks that give you the best chances of making a profit. In other words, if you are successful at picking the right stocks, you would’ve definitely enhanced your chances of achieving a return that is well above the average. To do this, you have to be able to evaluate stocks against a given set of criteria with the use of numbers and techniques such as ratio analysis.
A lot of people make the mistake of believing that there is some magic formula or some kind of magic solution that will pick your stocks for you. All you have to do is to identify this formula and then sit back and put your feet up while the money comes rolling in. Nothing could be further from the truth. There is no foolproof stock picking system that will guarantee success and there is no substitute for a lot of hard work and a healthy dose of common sense. If you work hard at identifying your criteria and analyzing the stocks in which you will invest, you will certainly improve the odds in your favor.
What makes stock picking a bit of an art are the following:
-There are so many factors that influence the performance of a company that it is almost impossible just to list them, much less construct an equation that takes all of them into consideration. Even if you manage with a Herculean effort to assemble all the data, you will still be left with the problem of assigning the appropriate weightage to each one of your numbers.
-A number of critical factors are quantifiable such as sales and profits which can easily be measured in dollars terms. Other critical factors which are qualitative in nature cannot be so easily measured and they would include things like the quality of the management, its competitive position and so on. In making a good stock pick, you have to consider both qualitative and quantitative factors and then make a reasoned assessment.
-Because the stock market is made up of people, human emotion and sentiment play a large part in determining the trends of the market. Because of the dominant emotions of fear and greed, stocks can often behave unpredictably with greed fuelling irrational optimism while fear can fuel irrational pessimism.
In short, there is no “best” method to pick stocks and you will have to decide which of the many techniques available work best for you. Whether you pick fundamental analysis or technical analysis will depend largely on your personal investment style, your tolerance for risk and the amount of time that you have to spare. As to the question you should be asking at this stage namely whether it is worth the time and trouble to pick stocks, the answer is a resounding yes. There is no better way in which you can multiply your capital on the stock markets. If you had picked Microsoft at its IPO in 1986, and simply held on, an investment of $10,000 would have been worth $3.5 million by 2004.
Tags: how to pick stocks, Investing, Stock Market, Stock Market Investing, stock picks