Those who enter the stock market do so with the objective of making money. They however adopt different means to achieve this common objective. One may want to profit from trading, another may want the stock dividends but the vast majority want to invest in a stock. Such people expect the stock to appreciate in value over a period of time when they can sell it for a profit.
Pick Best Stock For Long Term Investment
Picking the best stock for investment is a tricky affair. You are going to hold the stock for a long period of time and the decision to buy it should not be done in haste.
- Money can be made from many stocks irrespective of the quality. But a long term investor should keep in mind the safety aspect. The stock should preferably belong to the ‘A’ group. The companies included in this group are usually of good pedigree. The management of the company is sound and it is open about its financial dealings.
- Check the balance sheet of the company and compute the important ratios like Price/Earnings Ratio, Debt Equity ratio and Return on Equity. Select the companies whose financial ratios are good.
- Don’t invest in a stock which belongs to a sector on the decline. The stock may be available cheap but its best days may be over. You may get stuck in a dub stock.
- It is best to identify upcoming sectors and select stocks whose prices have not yet risen much but which have the potential to do well.
- Don’t invest in stocks which have already run up too much. They may be good stocks but they may be in for a correction and you can get them at cheaper prices later.
- Buying scrip of a good company, whose price is lesser than the book value, may prove to be a good decision as there may be scope for the stock price to rise.
How to Pick The Best Stock For Short Term Gain
You have to be equally careful when buying stocks for the short term. To select the best stock, in addition to the above, short term trend of the stock should also be considered. Once you select the stock decide on the target price and exit the stock when the target is achieved.
How To Pick The Best Stock For Trading
Traders do not bother about whether the company is a good one, whether its management is professional or whether the business would do well in the long run. It is only Technical Analysis that comes into play here. You can rely on professional technical analysts through your broker. You can also learn technical analysis yourself and compute charts and graphs depicting prices and volumes of stocks over a specified period. This facility is usually available in the trading of software provided by the broker. You can even buy software designed for technical analysis.
Tips When Buying Stock For Long Term or Short Term Trading:
- Never buy a stock based on a tip or on a rumour. The tips are usually given by people with a vested interest and you may run losses if you act on them.
- The stock market is very unpredictable and often things do not go on as we thought they would. Raging bull markets turn into bear markets in no time and trend reversals take place without warnings. At such times you need to cut your losses. Make sure that you place strict stop losses.
Do your homework well and decide on the stock which you feel will give you the best return.