When it comes to trading in the stock market, one should thoroughly understand the trending market strategies and should know how to buy a good value stock that will give maximum profit. Trading stocks is thrilling as one experiences frequent change in the stock price which is ultimately driven by demand and supply cycle.
If you are new to stock market and just starting to build your stock portfolio, then buying an individual stock without sufficient knowledge of market movements can cause a risk. Knowing to choose the right stock at the right time and sell it before the price falls, is of paramount importance for stock traders who want to beat the market and reduce the potential financial risks in future.
Fundamentals of Stock Picking Strategies
Many people often get uneasy about the volatility due to market fluctuations and fear the risk of loss. Business and individual investors can add value to their stock portfolio by following the best criteria for choosing the right stock of the right company. The proposed philosophy of Benjamin Graham and Warren Buffet proves useful in this case and helps investors make a better informed decision. Let’s have a head start on understanding the principles of this winning philosophy of all times.
#1 - Investment with a Margin of Safety - The principle of margin of safety helps investors to evaluate the intrinsic value of a company and provides a buffer against error in analyst’s calculation. The central theme of this principle is the typical investment strategy of buying the market shares for much less than their worth.
#2 - Be Ready for Market Volatility and Obtain a Financial Advantage – Investors planning for investment in the stock market must be ready to deal with any kind of volatility. Taking the advantage of this strategy, a smart investor chooses to survive the situation and participates in trading to find great investments instead of making an exit during the times of frequent fluctuations.
#3 - Know Yourself What Kind of Investor You Are – Graham classified the investors into two groups – enterprise and defensive. An enterprise investor actively analyzes the stock research and equates the quality to expected rewards. Whereas, a defensive investor only attempts to benefit from the best performing stock shares without making an effort to predict the long-term results. It is crucial for the market players to decide whether they are good at speculation or investment.
With so many stock picking options available, choosing the best stock at the right time can a challenging task for the investors. While every individual has different investing goals than other investors in the stock market, it is imperative to make a knowledgeable decision while improving stock portfolio. Any wrong turn or bad choice will affect the current investment framework and may produce unexpected deviations from the target to succeed.
Aim to Become a Successful Investor
There is no one way or any infallible system for picking the best value stock. However, with a clear mindset to achieve financial goals and focusing on high quality buying opportunities, investors can embrace the success of investing in stock market and continue to invest in the shares of companies whether the exchange prices go up or down.
Think about becoming a part-owner of a company and your mind will be tempted to buy its stocks. While you choose to step ahead picking the stock and establish a good portfolio in the trade market, consider these useful tips to increase the value of your investment and improve your financial health.
- Pick a company you are familiar with: Choose the business that is best in breed. Start enlisting your favorite brands and shortlist the companies that are having most of well-established brands. It is advisable to prefer preeminent brands and underlying sectors where these stocks exist.
- Consider Stock Price Formulation: Most of people who are new to the stock-picking events believe that a particular strategy, once followed, will credit success. But investment experts look for undervalued stocks and are more likely to pay low price per dollar. Sometimes, the stock price is expensive and sometimes it’s cheap. Always evaluate the company’s price-to-earnings ratio before choosing the stock.
- Perform Qualitative Analysis of Financial Health: Start with exploring the financial reports of the company and make sure that it has a strong past performance in the stock market. Share price fluctuations are inevitable. So it is advisable to get insights about the company’s bottom line. The stock price of a company with more debt payments is considered to be more volatile. A company that has growing revenue potential will benefit investors with more margins.
- Look for Dividends: Invest in those large-cap and mid-cap companies that pay out dividends to the investors. Large dividend payment means better financial health of that company. Check if the companies are increasing the dividend value and also if they are borrowing atypical amount for their industry.
Do’s and Don’ts of Stock Picking
- Look for the current trend of emerging market stocks and buy the shares of companies at lowest rate possible.
- Expect market volatility. A single stock is likely to be more volatile than a diversified fund. Check the historical data to know how broadly stock prices can wave in a year.
- Buy the stock but don’t forget to sell it. You should know when you want to sell the stock you have bought. Having a clear set of criteria for stock selling can help you obtain high returns.