Stock Picking Methods
Picking the right kind of stocks is imperative to get the desired returns in the stock market. However, this is an art which is known to very few investors. Here are some tips which can help you pick the right stocks at the right time.
Pay Attention to the Fundamentals
Paying attention to the fundamentals is the most important strategy. This is because only fundamentally-strong companies have the capacity to deal with tough competition and changing market trends. Those which have been posting good financial results over the years, have a good shareholding pattern, enough assets, less debt, and follow business ethics should be on your radar.
Note the Valuations
It is important to buy stocks of good companies when they are available at attractive valuations. So, you can make use of price corrections to accumulate them at lower levels. Averaging and bringing down your total cost price is a good strategy in blue chip firms.
Review the Business Model
One of the best methods is to review the business model and future growth of the company. To earn profits, consistent growth is necessary and only high profits can guarantee an appreciation in the share price and attractive dividends. You should analyze whether the company will be able to perform well in the years to come, considering the competition from its peers. Also analyze whether the demand for its products would remain intact in the ever-changing market.
Check the Management of the Company
A company is not a machine which functions on its own-it has to be run by an efficient leadership. So, are the people running the company in which you wish to invest, good enough to achieve the set goals and targets? What is their track record? Ask yourself these questions and do not invest until you get satisfactory answers for the same.
Check the Investor Interest
A stock picking price can go up only if it is bought by many investors, and hence, check whether the stock picking would be able to gather a lot of investor interest in the near future. You will be able to identify this only after sufficient years of experience in the capital markets.
Study the Technical Charts
Technical charts will convey how the stock picking price is moving in the short term. There are many companies which are fundamentally good but have given less returns, and hence, you should choose the fast-moving stocks which are showing an upward trend.
Strategies for the short-term, medium term, and long-term would vary, and an investor must be able to identify how long he plans to stay invested in the market before picking a particular method. For example, if one wants to trade only for the short-term, just a technical analysis may be enough to decide how the stock picking will move, and accordingly the investor can decide whether to buy or short sell.