When we fall sick, we go to the doctor, to a Chartered Accountant in tax cases and to a mechanic to get a car repaired.
Why do we do that? Because we need professional (expert) advice in all such cases. But when it comes to personal finances or investment decisions like selecting the stocks , we act according to our discretion, will, wish or mere advice from our friends or relatives.
Deep understanding, analytics and some special skills are important to make investment decisions whether it is a case of asset allocation or choosing funds or selecting the stocks; it’s like a full-time job. It is a general trend, that every-time when markets turns bullish, people rush towards buying scripts. Let me highlight that making profits from the stock market is not a child’s play. It requires patience and discipline along with good market research is also important. Investing in stocks without adequate research can lead to substantial loss.
Things to be taken care of while selecting the stocks
- Opportunity: It is important to see how big an opportunity is for continuous growth and more returns. Check if the company leads the industry and has the potential of fast growth. For example: E-commerce business in India is in its early stages, and considering the trends of online shopping, there is a great opportunity in these kind of companies.
- Competition: This is a risk to every company. An investor should choose a company which does not have high competition. So that, there are a lot of barriers at entry level in new companies. For example, in the telecom industry, telecom licensing is essential. It is also a capital intensive industry so one has to invest a lot in establishing the network. Hence, all of these should be considered and taken note of while taking investing decisions.
- Regulations: It is better to choose a company with low-regulatory hurdles. For example, interference of regulators is less in the FMCG sector. Also, the assets made by companies such as Unilever, Britannia, are quite high on any scale.
- Growth Rate: Along with the growth opportunity, past records and financial numbers are also important to consider before taking investing decisions. Usually, a 20% growth rate is good for evaluation. For example, in the cement sector Shree Cement has given investors good returns in the past because its growth is faster than other companies in the same sector.
- Dividend: A company with a dividend of more than 50% should be considered while stock-picking while companies with a dividend of less than 10% should be avoided. For example, MNC pharma companies with more dividends have done better than their Indian counterparts.
It is very essential to consider all these factors while choosing stocks for your equity portfolio. Careful research and quick analysis of all these factors helps in taking best investing decisions and minimizes risk as well. Happy Investing!