When you start investing you already knew a low P/E ratio is generally better than a high P/E ratio, it shows the company has lots of cash on its balance sheet with low debt. You already know a company with a low burden of debt is much better than a company who have high debt. For better investment smart investors should make a portfolio that is diversified across multiple sectors.
For better portfolio management and guidance you can take help from SEBI registered equity advisor. They take little brokerage but help you to gain high profit on your portfolio.
How to pick stocks?
Determine your investing goal: –
Not every investor has the same investing goal in life they all have a different perspective in life in terms of investing. Suppose a person in his 20s always goes for investing more and more for a long time frame. And on the other side, a person in his 50s is always looking for a regular income or saving his investment because he is near retirement.
An investor who wants regular income is always looking for companies that have good dividend yield and good cash flow and warning to support those divided. On the other side, the investor who looks for growth is going to choose small-cap companies that have a higher chance of growth in the future.
Find companies you understand: –
We all know if you are buying stocks of a company then you became partial ownership of that company. Then if don’t understand business clearly you are setting yourself up for loss or failure. If you are mining everything thing about a specific company and you think it’s a good company to invest then just avoid investing all your corpus into that specific company even if they have great management.
If you want to find many companies in a short span of time you can take help from SEBI registered equity advisor.
Determine if the company has a competitive advantage: –
Now if you are looking for companies and their competitors, it’s time to start noting down the list of all those companies. The most important thing you see in the company is a suitable competitive advantage and we can say moat in finance language.
Seeing the company does not mean what kind of competitor they have instead, you have to determine what advantage that company has rather than other companies who produce the
same product. The product and services that have a wide sustainable moat around them are the ones that deliver rewards to them.
Buy a stock with a margin of safety: –
This includes buying a company’s stock below the estimate of a fair value. While researching companies you find out the chances of the price of a particular stock will go up and it’s trading below their estimated price, then for sure, you have to choose those stocks to make a huge profit.
In other words, if valuation goes wrong you are preventing big losses by buying well below the fair price.
Uniqueness in the business model: –
Investors and people like the uniqueness of business because it attracts them. The profit generated with the unique business model is a very good sign that people like those businesses and their demand is high in the market. The uniqueness of business creates various profits that’s why always diversify your portfolio and make it wider to gain huge profit.
Quality of management: –
Go and view the quality of management first before investing in any company if, it’s now possible to evaluate the performance of the management then go into time-tested management rather than buying stocks of unknown managements. It is the most valuable thing to notice before investing because you can’t take the risk especially when the valuation is not cheap.
Debt/equity ratio: –
Before investing checking the debt/equity ratio is important. It shows how much the company is in debt against the number of shareholders. Generally, the lower the debt to equity ratio the less risky it is and you can invest in that company.
If you follow these steps and build a diversified portfolio of stocks across different stocks and industries, you will be able to generate a high return on your investment and also be able to beat inflation with a high margin. For a better portfolio, you can take help from SEBI Registered Equity Advisor with a minimum wage charge.
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