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How To Pick Good Stocks.
How To Pick Good Stocks.
How To Pick Good Stocks.
Introduction: 2
Basics: 4
What is a stock? 4
Investment strategies: 4
Fundamental Analysis: 4
Technical Analysis: 4
Behavioural Analysis + Social Signs: 5
Dollar Cost Averaging (DCA): 5
Discovery Phase:
- The discovery phase is the phase when you are looking for industries/companies
that are undervalued.
- Highly recommended that you go for an Industry that you are highly familiar with.
- Knowledge about the industry gives you an advantage over other investors. (Try to
find an upper edge over other investors)
- Use stock screeners and filter it down to the criteria that fits your requirements.
Phase 3:
- Start with the global financial outlook for the next couple of years.(Global Economy)
- Look at the national economy. Analyse the financial outlook for the next couple of
years. (National economy)
- When you follow this trend, you often learn that when you find an Undervalued
stock, it can be possible that the entire industry itself is undervalued, which might not
get you enough returns. Also try to look at the industry avg, which will help you in the
future to compare 3-5 competitors.(Industry)
- After looking at the industry average ratios and financials, try to look for companies
that are direct rivals, allowing you to compare them closely and helping you to make
a better decision. (Core competitors)
Phase 4:
Before you click on the “Buy” button, there are a few things that you still need to look at.
This includes the company’s culture, board of directors, CEO. Additionally, you could always
dig deeper into the financials (including balance sheet, statement of cash flow, income
statement and the statement of shareholders), which can be available to the company’
investor’s relations web page.
Basics:
- As mentioned earlier, go for “low risk, high rewards”
- Average Market growth per year 10% hence, the company that you invest in, should
have a minimum growth in revenue of 10%.
- Invest based on Logic
- Humans often work on emotions.
- Know the dangers of following a crowd.
- Limit your emotions, try to invest rationally.
What is a stock?
● A stock represents ownership in a publicly traded company.
● A stock is bought and sold on stock exchanges.
● Price fluctuates on demand for shares.
● Stocks and bonds are different types of investments.
A bond is when you lend money to a company. Paid off with little interest.
Investment strategies:
Fundamental Analysis:
Technical Analysis:
- Analyse trends gathered from trading activity.
- Focus on supply and demand of shares.
- Generally short term. (Not always)
Active:
- Conduct thorough research and use up a lot of time.
- Helps effectively identify risks.
- Attempt to beat the market
- Gives numerous short term trading opportunities (Swing trading)
- Can be costly (In terms of commission)
Passive:
- Utilize DCA(Dollar Cost averaging)
- Diversify assets in order to mitigate risks.
Beta:
Beta is the volatility of the stock VS the overall market. (1= same as market)
Quick Ratio:
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠− 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
- Indicates short term liquidity
- Higher ratio = better liquidity
- Lower ratio = difficulty paying debts
Dividends:
- Direct cash payment from company to shareholders.
- Typically paid quarterly.