Investment is a great practice that helps to secure your future.
If you are a first-time investor, picking a good financial portfolio can seem like a challenging task. But before we give you tips on selecting the right stocks, it is essential to know that generally, a low P/E ratio is better than a high P/E ratio. It means that it is better to invest in a company with a lot of cash on its balance sheet than those burdened with debt. A pro tip, if you are starting as an investor, your portfolio should be diversified across multiple sectors.
But with so many stocks, things can get confusing. You can ask questions like, “should I invest in amc stock?”
Analyzing the balance sheet of every company is a tedious and impossible task. But then you would need to select the right ones from the thousands of options available.
Wondering how to do that? Then keep reading this article.
If you want to become a smart stock-picker, then keep the following things in mind:
- You would have to be very determined about what you wish to achieve in your portfolio. And then ensure to stick with it.
- You should be aware of the daily news, trends, and events that drive the economy and its companies.
- You should use goals and knowledge to inform the decisions for buying/selling stocks.
As mentioned earlier, the first thing you should focus on is determining the goal of your portfolio. Of course, the primary motive behind investing is generating income, but different individuals have different financial goals. Some want to preserve wealth, while others wish to generate income in their retirement years. Depending on the goals you have in mind, you would have to use different strategies:
- Wealth preserving investors have a low tolerance to risk, and thus they invest in stable blue-chip corporations.
- Income-oriented investors are focused on buying stocks that will pay them good dividends regularly.
- The investors who have capital appreciation in mind would be looking for companies performing great in their early growth years.
An investor can use one or a combination of these strategies to create their perfect portfolio. This is the primary motive behind diversification. Depending on the type of investor you are, you can pick out the top-performing stocks that would fulfill your aims. This would potentially reduce the list of companies you would want to invest in.
Smart tips on picking up the right stocks
- Always be updated with the market news and opinions. Keep yourself updated by reading the financial news and blogs by experienced writers, as that will work as passive research material for you.
- Now that you know the basics, it is the right time to take your research a step further. Try to understand the market demand for a given product and the potential of the given company to prosper in the future. However, you should also critically analyze your assumptions and theories. With the right type of qualitative analysis, you will evaluate your choices for continued analysis.
- The next step is to list down the companies that fit your requirements. There are three simple ways to do that:
- find the Exchange Traded Funds that track the performance of your preferred industries and lists down the stocks they are interested in
- screener, which helps to filter out stocks based on some criteria
- Researching through reading by reading stock analysis articles, financial news releases, etc.
- Once you are certain about the industry that you wish to invest in, this is the time to turn your attention to corporate presentation. These will contain all the major information that might prove to be helpful for you in the future.
Once you are thoroughly done with all the steps of your research, you will be left with only a few companies that would match up to your expectations. Quality research is important to stop you from making a bad investment move. Knowing when and where to say no is a crucial aspect of stock picking. You should dedicate a good amount of time to researching before you actually start investing in your favorite companies or industries.