How to pick stocks

How to pick stocks

Picking the right stocks is the key to success. But there lies the challenge. There isn’t any single theory that can be applied when it comes to understanding how to pick stocks. There isn’t any definitive science that you can stick to. What there is a plethora of factors that need to be taken into account before putting your hard-earned money in a company stock. That’s because analysing the various factors can help you make the right pick. So, let’s go through the various factors you need to take into account before knowing how to pick good stocks in Indian market and optimising your investment:
Company fundamentals: To discern how to pick stocks, you would have to do some research and find companies that have strong fundamentals. Analyse the financials of the company based on some key financial ratios.

Earnings per Share (EPS): This indicates post-tax profits of the company on per share basis. For instance, increasing EPS indicates that the earning power of the company is on the rise.

Dividend Yield: Consider this aspect if the primary

objective of your investment is to know how to pick stocks for long term and earn a steady income. It indicates percentage of return that can be expected in the form of dividend on your investment at the current market price. An increasing dividend yield indicates that the investment has potential to provide regular stream of income.

Price to Earnings (P/E) ratio: This is calculated by dividing the current market price of the company’s stock by its earnings per share (EPS). It shows how much the market is willing to pay for the earning prospects of the company. If P/E ratio is high, it means the stock is overpriced. If P/E ratio is low, it means that the company has a good growth potential. However, this strategy holds water if you compare the stock with its peer company.

Price to Book (P/B) ratio: This ratio is calculated by dividing the current market price of the company’s stock by its book value per share. High P/B ratio indicates that the market value is more than the book value. Lower P/B ratio indicates that the company is undervalued. It’s one of the ways to evaluate banking stocks.

Thus, companies with increasing earnings per share, increasing dividend yield, lower price to earnings ratio (P/E) and lower price to book ratio (P/B) are considered healthy. Basically, these records show past performance of company. Based on the fundamentals, you can shortlist companies that are worth investing.

However, you can further distil your stock choices by looking at the following factors:

Nature of business: A company’s business model can give you an insight into its future prospects. It’s also better to invest in businesses that you understand. Knowing the nature of business and its model can help you take better decisions.

Company’s management: Details of a company’s promoters and their background are easily available on the internet. Look for a management that is stable and experienced. These traits can be a good indicator of the company’s future potential that can help you understand how to pick stocks for day trading.

Stock valuation: Picking the right stock at the right price is the key. It’s important to analyse whether the price of the particular stock is fair or expensive. So, do due diligence before you buy the stock. Make sure you aren’t paying a premium.

In a nutshell, informed decision is the key to knowing how to pick the best stocks for successful investing. Although there is no Bible to guide you, poring over the company’s activities can help you gauge its future prowess.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.


Investing versus trading in gold and commodities

Investing and trading are two sides of the same coin. That’s because both the approaches help in building wealth. The only difference between difference between trading and investing is that while investing money is done for a longer period of time, trading is more dynamic and is conducted over a day or two, or maybe a week tops. The same principles are applied while investing money in commodities too. So, let’s look at different scenarios that can help us understand the difference between investing and trading in detail.✓ Investors and traders generally prefer to deal in different commodity instruments. While investors, who have a medium- to long-term perspective, like to put their money in commodity stocks and exchange-traded funds (ETFs), traders usually prefer commodity futures. It is not to say that traders don’t dabble in forward trading in commodities stocks or ETFs, but they usually swear by commodity futures. A commodity futures contract is an agreement to buy and sell commodities at a specified price on a specific future date. Crude oil and agricultural commodities futures are short-term contracts that locks in the price of commodity a few weeks or months in advance. Traders take various factors into consideration to keep actively buying and selling on a regular basis. The investor, meanwhile, likes to bide his time, maybe even take over a year, before he plans to cash in on an opportunity. ✓ An investor plays the waiting game in order to evade the daily market volatility. A trader, meanwhile, uses several financial tools to figure out which instrument can make him money over a short period of time. To understand the difference between day trading and investing, we borrow a cricket analogy -- an investor is like Rahul Dravid while a trader is like a Virender Sehwag. Both can fetch you runs but in vastly different fashion. The reason the investor has a long-term perspective is because past data show that commodities like gold have usually fared well in the long run. Let’s take gold’s case as an example. In 2007, the metal was valued at Rs 10,800 per 10 gram. Today, it’s priced at Rs 31,800. This is the reason why investors usually have to be patient. A trader though usually uses experience, nous and technical know-how to make money over a shorter period. The objective here is to predict market volatility to make money. In short, investing is relatively less risky than trading. The commodity trading market, therefore, works for those who have a high risk appetite. ✓ An investor looks at the fundamentals of commodities. That means they consider various economic factors that would impact supply and demand of the commodity. But, traders do a technical analysis to predict the direction of the market. Since traders make predictions based on price movements of commodities, the focus is more on the commodity’s market price rather than the factors that affect the price. To sum up, both the practices require different ethos. While both may have the same destination, the paths chosen are different. It also depends on your risk appetite and time horizon. If you are new to trading in commodity-producing stocks, you could read more on reserves, rates of production, value of enterprises and net present value. Better still, you could seek the advice of a financial expert or professional to guide you through investing in commodities successfully.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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4 mistakes to avoid while investing in gold and other commodities

Gold is so popular in India that 11 out of 10 people in the country are interested in owning it. That statistic may not be true but you get the drift. This piece of yellow metal has captivated a billion people for thousands of years. Other commodities like agricultural products, energy and livestock don’t hold the same degree of fascination. That said, the commodities market is a popular avenue among investors in the country. But if you are newcomer to commodity trading, you need to be careful of avoiding some of the common mistakes people make. It’s always better to learn from experience, even if they are not yours. So, let’s look at a few banana skins you should look to avoid in the field of commodity trading when you set out on the road to commodities investing. 1) Investing for the short termGold is a very valuable asset among Indian investors for short term investments. However, to avoid mistakes to avoid while investing in gold, don’t invest with unrealistic expectations. Hopes of a 50% appreciation in gold price in six months or a year can leave you disappointed. When you invest in gold for short term investments, it is better to have a long term approach. This can help you ride the volatility in the short term. In addition, be careful not to depend too much on gold during short-term financial requirements. In case you liquidate your investment at a short notice, your returns may be much lesser than expected. 2) Not maintaining a stop lossWhen it comes to investments, everyone makes mistakes. But the good investor knows when to exit an investment at the right moment and minimize his losses. It is well known among investors that commodity trading comes with a certain amount of risk. A wrong investment can result in big losses for the investor if he is not careful. That’s why it is important to maintain a stop loss to personally protect your trading positions. 3) Going big right from the beginningMany novice traders make the mistake of going big on their first investment itself. This can be a risky proposition in commodity trading. If you are new to the market, here’s one of the most important commodity trading tips -- it is best to begin your journey with a small sum of money. This way, you protect your capital against unnecessary losses. Over time, you can improve your trading record by expanding your knowledge on global events and price fluctuations in the market. With respect to gold, you can invest in even 1 gm through gold ETFs online. This is another one of the crucial good investment tips to begin your investment journey into commodities. 4) Lack of diversificationNever invest your entire capital in a single commodity. For example, you might find the metal sector very attractive or perhaps the energy sector shows great potential for high returns in the near future. Regardless, it is better to allocate your capital into different assets to minimize your losses in case a single commodity or sector falls unexpectedly.To sum up Commodity trading offers great opportunities for good returns. However, it is important to remain calm and patient when you invest in commodities. When compared to investment in the stock market, commodities futures contracts provide investors with a greater degree of investment flexibility. That’s why, it is important to be aware of your personal risk-reward ratio and invest accordingly.It is important to know that not all commodities are equally risky. To ensure your te right pic, you may want to gauge the amount of risk suited to your profile. This is crucial, because commodities undergo extraordinary price movement on the slightest hearsay of critical news.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Tax Saving FD – Know About Tax Saving Fixed Deposit

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