Tips to Identify Correct Shares

Today I will discuss abt the features I look into any company to invest or buy a share. The requisites I look for are very simple.
I was first trained by my husband to read the financial status ,balance sheet and read the quarterly or annual returns which the company publishes in ‘business magazines/channels. Though its consider to be the classic method of investing, its very painstaking and gives an impression of very ‘boring’ and ‘disinteresting’ to make an attempt to understand or try our hands in it.

In this post I am going to share few parameters I set to get into any share. Though the serious or complex investor might disregard it. In my case it clicked.

1. Know the sectors u want to invest ur money. By saying that I mean banking,infrastructure,oil and gas, fertilizers ,…….etc.

(a) In every sector there r large caps,mid caps and small cap companies which run with respective capitals as the name suggests. The share value of large caps r big expensive compared to that of mid caps and small caps.

(b) Before u invest select few stocks and from the sectors of ur choice, For eg: If I selected banking as the sector I want to invest an amout of 10,000/- I would divide the amt to invest some of it into a share which would give me immediate returns, and the remaining amount of it into a share for which grows steadily.(There is a reason why one should do it will explain in detail in this same post).

2. Always follow the rule “Buy low and Sell high”. This is the mantra of getting good returns . Now how to know the right time or know that the value of the share is low to buy it. Look for the table which shows the performance of that stock in previous yr or atleast the scenario of the stock 6m before u enter it. Look for the 52 week low and 52 week high levels of the stock.

(a). Once u have studied that observe the market trend of the share, and the news that effect the share either to fall or raise it.

(b). The share should increase with all the shares of similar sectors with the growth of market and vise versa. For eg, if I bought some shares of a fertilizer comp., and the Govt had subsidized or provided some incentives to fertilizer comp then automatically all fertilizer shares increase with this news, then the comp I bought should also increase, if it doesn’t increase or sluggish then there r other internal reason in the company which is curtailing it from growing with the rest of the companies in open market. Reasons would be poor financial support, export prob or some other.

3. Know the time limit or type of invest(long term, medium or short term) u r doing. Money increases in share market gradually not instantly. So one should decide how long u can hold the stock. If u have an time limit of say 6m u should invest in share which give u returns at least 10-20% returns on ur invest into it. So search for the stock which has fast returns within that period.
(a). While saying to set ur limit it should be done with a sight or an target of profit u want to achieve while buying a stock.
(b). Don’t be greedy once the stock has reach the profit level or 1-3 values near the targeted price. As it is the scenario of the stock that it begins to fall once it has booked it profits as share holders on the large scale in that particular stock will start booking the profit where by resulting the stock value to decline once it experience selling or profit booking.
(c). The basic reason why the stock increases is when the stock has purchasers on regular basis and the stock declines when it is been sold either as it has reached its profit booking level or due to any other negative news relating to the sector or individual stock as such.

4. Finally, basic types of investment in a stock market is done either GROWTH STOCKS or VALUE STOCKS.

(a) GROWTH STOCKS : Are those stocks which give instant returns, they r generally highly valued. They generally don’t meet all the criteria’s but have a very strong potential to grow.
Buying these shares need intuition and fair judgment. These do involve some risk factor.
Now how to identify Growth Stocks : If u look into the company charts they feature high growth rates, profits , equity rates and returns etc. The stock in a five yr span would have achieved 5-20% growth rate depending upon the size of the company(small, large scale).

(b) VALUE STOCKS : Are the stocks which r generally bought when they r undervalued in the market but has potential to grow. These shares r generally bought when the market corrects and the stock prices fall and reaches their 52 week low. Remember these stocks have potential to grow hence they r bought considering their growth rate and the time they take to grow or reach the profitable levels. The stocks r bought with thorough research and study.
A good value stock r those which has as much ownership interest as assets.
The price earning ratio should be less than one.
This is the way one calculates (PER)
Price Earning Ratio = Price per Share / Annual earning per Share. The P E R should be less than 1 for a good value stock.
These details can be achieved from the annual report of the company.

It is ideal to include both types of stocks in a portfolio so that from Growth stocks u get early returns n from Value stocks u can get steady returns.

Hope this helps to all beginners to understand the nature of a stock before investing, I have tried my best to simplify the terms of trading, pls let me know if any further explanation is needed.

 

Thanks Shanvy,
I started this to bring out interest in women to trade,many believe that its guy's thing.Believe me its not that difficult as it seems.All it needs is clear fundamentals and sharpness to grab the right thing and exit from huge losses.
Above all if done correctly,this is the best medium to earn stable income staying at home.
bye!
sudha.