Equity investment is one of the most important investment avenues for investors as it always gives multiple returns in a long duration. But yes the major question is how can we select that stock, just by hearing the name only, Is that enough? Probably not, but you try to understand the basic structure of the company can surely benefit,
Every investor tries to invest in those companies which are having a long record of performance along with high trust value. Because it’s business it may run long or can collapse soon. So while investing in equities there lies a risk of investment also, which actually makes Indian investors stay away from the equity asset class. And Investors shift themself towards other instruments like FD, Bonds Gold, etc which are having criteria of fixed return which many investors enjoy.
How to identify good stock for Investments:-
It’s been always a big question to identify a good stock as there are more than 6000+ companies listed on the exchange and it’s not easy to track each company from an investment perspective. As all it takes a long time just to understand about the company better one should the basic approach to understand it.
Identification of Sector:
Before proceeding towards investment in any stock we should first select the sector in which we want to invest, Selection of the sector actually depends upon the understanding of the business model of the company so that investor should relate it with the current market condition. In the stock market, it’s better to go with the flow instead of going against the flow.
Understand the Business Model of the Stock:
Once the sector selection process is done. We must look into the business of a selected company, what kind of business the company is doing will it be suitable for the long-term, how its revenue generated, the impact of government policy etc, these all things actually play a vital role while selecting any stock.
Warren Buffett Quoted once – “I look for integrity, energy, and intelligence in management.”
Management is considered as the backbone of the company, A fair management always gives a clear outlook of the business as well as present a fair image of the company. One should look at what kind of management is in the company is it Professional management or Family management. Professional management is more favorable while selecting any stock.
Past track record of the company:
Investment is actually a game of numbers along with facts & figures, Companies showing consistent growth with positive returns are always considered more favorable, Though the business is not the same all-time some times its profit some times its loss, So investors actually show faith in those companies who are consistent in the market from a long run.
With the help of certain financial statements like P&L, Balance Sheet one can actually look into the company performance, though it’s not easy for everyone to read the financial statements one can take the help of certain financial websites available for it.