So you decided to be an investor. Now you need to pick
which stocks to invest in.
Given with a number of choices, choosing stocks can be
tricky for an average investor. Here are four things to consider when picking
stocks:
Budget and Goals
Creating an investment portfolio containing only corporation
stocks could be very risky. It is usually advised to have a portfolio that
consists about 10 percent or less of individual shares, given the high risk
concentration of owning company compared to other methods to generate returns.
Acquiring corporate stocks means you own a portion of that
business and the company’s performance will determine the value of your
investment, which could instantly change.
Company Business Model
Pick the stocks that provide company business models that
are easy to comprehend and fairly simple. But, if you do understand a
particular industry data regarding a company that other investors find
difficult, then these shares are also worth considering for your investment creation.
Familiarity
Start with a company or a business that you are
well-acquainted with, as this is a good starting point and may also help avoid
the hype. You also have to take into account if that company can offer excellent
insight to the business.
In general, consider the companies that you believe will eventually
possess a strong competitive advantage.
Research
Venturing into the stock market world can be nerve-racking
for new investors. Filled with confusing jargons and the risk of losing money,
you might end-up wandering aimlessly.
The stock market can be complicated, but it is not as hard
as it may seem. You just have to familiarize yourself with a few investment
terms to have a basic understanding of any stock. Here are four you need to
know:
P/E Ratio
Price-earnings ratio or the P/E ratio is simply the ratio
for valuing the company that calculates its current price per share dividend by
its per earnings share. The lower this ratio, the cheaper a stock is and shows
its value in relation to its profits.
Revenue Growth
Revenue growth is the company’s overall sales in a specific
period. Every stock needs to show revenue growth, or at least plan to do so in
the near future.
Profits are also essential, but they tend to be more difficult,
when tax changes or expense cutting are included. There are volatile and is
usually affected by one-time events, making them harder to analyze on a
quarterly basis.
Dividend Yield
This is the annual dividend payout divided by the stock
price and the percentage of the value of shares that investors get paid back to
them on a yearly basis. Most stocks pay out dividends per quarter and a number
of them do not pay dividends at all.
Debt
Debt is basically the company’s liability. Just like what
you have seen in your own balance sheets, does the company’s debt appears
over-extended? Hence, research where their debt is trending and how that compares
with their rivals and industry in general.
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