How to become rich fast by choosing the best stocks? Check top tips to pick super performing shares
Stock market investment tips: Equity investments are considered as the highest returning assets among all the options in the investment class. But there is no point of putting your hard earned money at risk. People often remain confused about picking the best stocks. There are 5,439 listings on Bombay Stock Exchange, while 1,952 listings on National Stock Exchange, all from various sectors and industries. But do you know how to choose the right stock for investments? Do you know what all things are required to analyse stocks? What all it takes to make the right choice on equity?
One of the world's richest man, Warren Buffett believes that an investor should always treat his\her investment as a business, He says, "If you want to choose the right stock, pick a company you wish to be an owner of".
Sr. Fundamental Analyst (Equity), Avinash Gorakssakar told Zee Business Online, ''An investor should carefully analyse the data of the company before investing. He\should examine the debt-equity ratios, dividend payouts, business modal, working capital, etc."
Here is step by step guide for choosing the best stock to become rich:-
1. Make a list of the companies you like:
One should make a list of the companies, he\she likes, this is the easiest way to choose the best stock for your investments. Firstly, make a list of the products and services you like or the brands you prefer buying, be it shampoo, cigarette, car, shirt, phone, TV, Mobile network etc. Then do a Google research to know their parent or manufacturing companies. After that, find out which of them has a listed stock on exchanges .i.e NSE and BSE. Then shortlist the best companies from the list. This technique is the easiest and productive tool to go for the right stock under your belt, as you will likely to trust a company more if you do like its products or services.
"Any company which offers a dividend payout below 15 per cent should be avoided, as the financial figures could be manipulative. However a dividend payout ratio of 20 per cent or more is always preferable," Gorakssakar mentioned.
2. Do an online\offline research:
Next step is to do online or offline research. Go through web, newspapers, all over and search for every possible thing about your favorite company like its-offices, products, services, reviews, customers, complaints, upcoming launches, failed schemes, successful ideas, demand in products, legal aspects, policies, history, news, ratings, awards, management, financials etc. The more you will read, more you will get to know about it and the better you can invest.
3. Read all the financial reports:
Reading all the financial matter of the company is highly recommended. Financial numbers tell a true story of virtually good or bad looking corporate. Important aspects like, balance sheets, comparative studies, financial statements, Annual or quarterly results, graphs, sales and revenue figures etc. A keen investor should know the key insights of the company. He\she should also be familiar with the assets and liabilities company posses.
"Investing in a new company should be avoided due to the lack of financial data. The company with over 5 years of track record should be minimum eligibility to start with," Gorakssakar explained.
The financial study of a company requires basic knowledge of financial theories and tools, however, an investor can ask an expert to do it instead.
4. Read all the recent related news:-
The news tells about the recent major happening about the company. Any ongoing case, major launches, deals, negative or positive aspects, legal conflicts, financial graphs, management changes, reforms etc, news says it all. Therefore surfing all the related news in detail depicts a real picture of the company and its functioning.
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5. Do a study on the company's product\service line:
Do a detailed analysis on the company's products and services. Fetch all the information about the kind of products it manufactures, services it provides, to which sector it belongs, how many rival products\companies are there, how well its products\services are doing in the market etc. In this way, one will get an idea about the company's business strategies and its product or service growth.
"Every company works on a different business modal like B2C or B2B, therefore an investor should research on the operational structure of the company," Gorakssakar added.
6. Do management research:
Management of a company tells an inside story. If possible do a research of the people in top management. Find out who are leading the topmost positions in the company and their history. Were they equally good in the previous organisations or do they have any success awards under their belt or not.
"Many companies report brilliant numbers at the operational level, but eat out the most part at working capital levels. Therefore the working capital cycle of a good company should be in favour,'' said Gorakssakar.
7. Study historical charts and patterns:
Next step is to analyse the technical patterns and price charts of the stock. An investor should closely examine all the trends and movements in prices, demands, supplies etc. There are number of websites that provides a stock screening service and free tools to perform the technical analysis of the stock.
Technical analysis of stock requires a professional study of chart structures, prices tools, pattern movements, and trend-lines. However, an investor can approach an expert in the industry for technical analysis and advisory.
8. Seek advice from an expert:
Making investments in equity markets requires a lot of study and knowledge. Everyone cannot be an expert to determine, what could be a good option in a given amount or budget. Therefore, it is always advisable to have an expert's advice before making any decision regarding investments.
Note: The investments in equity markets are highly volatile and risky, any investment in any company\stock is advised to be done after reader's discretion.