“Anyone can get lucky for a short period of time. But consistent outperformance over long periods is probably evidence of skill.” – Bill Miller
You don’t have to beat the market to be successful over time. There is risk involved, as there is in all investments, but the important thing is to balance the amount of risk you’re willing to take with the return you’re aiming for.
Different Kinds Of Stocks – First it’s important to understand what is a stock. When investors talk about stocks, they usually mean common stocks. A share of common stock represents a share of ownership in the company that issues it. The price of the stock goes up & down, depending on how the company performs & how investors think the company will perform in the future. The stock may or may not pay dividends, which usually come from profits. If profits fall, dividend payments may be cut or eliminated.
There are lots of reasons to own stocks & there are several different categories of stocks to fit your goals.
Growth Stocks – Growth stocks are companies that increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole. Growth investing, however, involves more than picking stocks that are going up. Often a growth company has developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries. Businesses that can grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process. And, the faster they grow, the bigger the returns can be.
Unlike value stocks, high-growth stocks tend to be more expensive than the average stock in terms of metrics like price-to-earnings, price-to-sales, and price-to-free-cash-flow ratios. Investors buy them because of their record of earning growth & the expectation that they will continue generating capital gains over the long term.
Blue Chip Stock – Blue chip stocks are shares of very large and well-recognised companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions. Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries.
Income Stock – Income Stock is a form of security which provides regular dividends to the investors. This dividend steadily grows over time to adjust for dividend to inflation. Such stocks are mostly issued by companies with stable cash flow and well-established financial infrastructure. These companies have large market capitalization and usually operate at a mature stage in their growth graph.
Value Stock – Value Stocks earn the name when they are considered underpriced according to several measures of value described later in this booklet. A stock with an unusually low price in relation to the company’s earnings may be dubbed a value stock if it exhibits other signs of good health. Risk here can vary greatly.
- A Smart Way To Buy Stocks – Choosing good or right stocks there is no secret to it. Information is the key. Having information or Knowledge about companies is more important than other factors. Information is even more important than timing. Good stocks tend to stay good, so you can take the time to investigate before invest.
There is Some Factors We Analysis Before Investing In Stocks:
Earning Per Share – Earnings per share or EPS is an important financial measure, which indicates the profitability of a company. It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.
Price Earning Ratio – The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock price and earnings per share (EPS). It is a popular ratio that gives investors a better sense of the value of the company. The P/E ratio shows the expectations of the market and is the price you must pay per unit of current earnings (or future earnings, as the case may be). Look for companies with P/E ratios lower than other companies in the same industry.
Dividend Yield –Dividend yield is the financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share. It is computed by dividing the dividend per share by the market price per share and multiplying the result by 100. A company with a high dividend yield pays a substantial share of its profits in the form of dividends. Dividend yield of a company is always compared with the average of the industry to which the company belongs. For Long Term Investment. Look for a dividend to generate income to reinvest in the company. The target: a pattern of rising dividends supported by rising earnings.
Return On Equity – Look for a return on equity that is consistently high, compared with the return for other companies in the same industry, if that shows a strong pattern of growth. A steady return on equity of more than 15% may be a sign of a company that knows how to manage itself well.
- More Clues To Value In a Stocks – The company’s industry is on the rise. Even though you can make money in a declining industry, you’re more likely to succeed in big & growing markets than in small or shrinking ones. Exciting young industries offer potential, but the staying power of any particular company is hard to predict.
The company is a leader in its industry. Being number one or two in its primary industry gives a company several advantages. As an industry leader it can influence pricing, rather than merely react to what others do. It has a bigger presence in the market. When the company introduces new products, those products stand a better chance of being accepted. Also the company can afford the research necessary to create those new products.
- Reinvesting Your Dividends – Dividend reinvestment is using the cash dividend paid by a company or fund to buy more shares of that same investment. Any investor can use this strategy since most brokerage accounts have automatic dividend reinvestment programs that automate the purchase of new shares in that same stock, exchange-traded fund (ETF), or mutual fund. Similarly, many dividend-paying companies offer investors the opportunity to participate in a dividend reinvestment plan (also known as a DRIP). Meanwhile, even if a broker or company doesn’t provide an automatic dividend reinvestment plan, an investor can manually reinvest their payments. You can pocket the cash or reinvest the dividends to buy more shares of the company or fund. With dividend reinvestment, you are buying more shares with the dividend you’re paid, rather than pocketing the cash. Reinvesting can help you build wealth, but it may not be the right choice for every investor.
When To Sell Stocks –
- Sometimes, there’s absolutely nothing wrong with a company or its stock. There are simply better investment opportunities elsewhere that would yield higher returns. Investors can then consider selling a less attractive stock (even at a loss!) if they believe they can get better returns by investing elsewhere.
- Investors should seriously consider selling a stock if it so happens that their rationale for buying it was flawed, if the valuation was too optimistic, or if there are any additional risks associated with it.
- If an investment’s price has plunged in a way that it causes investors to lose sleep over it, it is a signal for them to move their money elsewhere.
- One tends to invest for the long term in India. However, one should consider selling if the stock price escalates to a point where it no longer reflects the underlying value of the business. Additionally, one should re-examine his/her evaluation of a company’s fundamentals when the stock suffers an unusual decline in its price. When bubble bursts, stock prices will not rise to the previous level until the fundamentals improve again. There will be no immediate rebound, as the drop is a correction of the previous mispricing.
