Stock picking is not a full-proof act because no analyst can completely predict the future price of any stock. While choosing stocks to add to your portfolio, one must have a certain strategy and patience to stick with the plan.
The mentioned cases might help you build a proper strategy to pick stocks with maximum profit over time:
1- Define your goal. Expect profits according to the capital. For smaller investments prefer companies that can at least preserve your capital instead of taking risks. A few years back, the UK started an initiative, PFS Pay For Success, in which companies decide a certain outcome before collecting funds. They distribute the profits only after the particular outcome is achieved. In this way, only profitable shares are paid back. After Malaysia accepted this model, a lot of Bursa stocks run on this policy.
2- Check for companies’ balance sheets, income statements, stock prices over previous years, debts and improvements to invest safely.
3- Do your homework. Do passive research on the internet and read news articles on the current market. Know the long term benefits of any market
4– Study companies’ Debt-Equity ratio. It determines the total share of funding by the bank and its shareholders in the total worth of the company. Higher the ratio, less profitable it is to invest in such companies.
5– If you are fresh at stock picking, start with one stock, assess the results and stick with your policy. In the beginning, losses might make you feel coarse about stock investing, but patience is the hit.
6- Never put all your eggs in one basket. Don’t invest all your coins in a single company in the lure of high returns; instead, prefer picking stocks of the company which is involved in different markets. This shall make you float even during the time of inflation.
7- Remember, all stocks shouldn’t be created equal. Investment should be subject to the returns of the company over the past decade.
8- Due to the fluid nature of stocks, you should first determine what kind of investment are you looking for. The choices vary from day trading to trading for a short term to holding stocks over a few years.
9- If you have zero clues about the market and still want to invest to at least start from somewhere, you can pick from Consumer Goods and Industrial Goods/Services Sector because they’re tied to major components like food, clothing, and shelter.
10- Shortlist companies over their Price-Earnings ratio.
11– Choose for companies with consistent growing dividends. Dividend growth is a crucial point investor should keep in mind while shortlisting the companies. Such companies help your investments keep up with the bear market.
12- Watch for undervalued stocks. A lot of Asian people this year put their capital in KLSE stocks during the first half of the year at discounted prices in hope that they will rise to their intrinsic rates in the second half.
13– Many times, even after shortlisting tens of companies, you still might cut out a few companies on the basis of their returns over your expectations. It’s fine. Maybe, this shall save you from incurring losses in the future.
Try to follow these steps while stock picking for more profitable returns. Always remember, never judge a stock over a limited time. Spend maximum time with it if you think the company matches most of the above criteria. Start investing wisely and do not just depend on one source of income, who knows if you can be the next Warren Buffet. Good luck.