Do’s and Dont’s Before Investing Into Any Stock : Analysing the Company

Investing into stock markets has always been a tricky job. If one gets hold on the perfect scripts it can make him rich in lesser time with steady returns. If the script selection goes wrong not only the returns and savings are lost but sometimes the entire money goes into a bucket with the company getting delisted from stock exchanges. There have been several such cases where there has been high erosion of valuation. Lets take examples of Reliance power or Yes bank or Vodafone Idea. On the other hand there are shares such as Bajaj Finance or Bajaj Finserv or Infosys or TCS which have given stellar returns over time.

Hence one needs to be very clear about the stock picking strategies and select every stock wisely. If one has 100% confidence in investing in one stock then he should add it to the watchlist. After selecting various such stocks, stock picking should begin on the basis of the amount one has to invest. First of all, such an amount which is available for investment should be free from any burden. In other words if all such money goes in vain and 100% loss is made, even though the situation and condition of the person should not move an inch. This should be the extra amount which needs to be invested into better return fetching items.

The Do’s and Don’ts

There is a saying that one should never indulge into any activity without having a complete idea of it. This saying is completely applicable to stock markets. There are lots of rumors and wrong information circulating into the market. All this is majorly due to the speculators and promoters’ game plan of dragging or rising their stock prices. Hence falling for such news is not at all appropriate for investing purposes. The reason is investing is a long term strategy. It gives multibagger returns over a period of minimum 3 to 5 years. Hence patience is the key to markets and proper analysis is the only route to plan strategy.

There are various aspects to be kept into consideration like updated news of any company or market or segment or sector. One should also keep an eye on the movement of the competitors and have a close view on the comparison factors between the companies in one sector. There are various ratios and other chart and cable stick patterns available to compare such companies on the basis of technical and fundamental factors.

Pricing Factor

There is a very interesting factor known as pricing of stocks. For instance, if news has hit the market that HDFC bank’s ban on  credit cards has been lifted, it takes almost twice as long to reach the general public or retail investors than the fund managers or company stakeholders and their known people. Hence the stock is already under the overbought zone before the news hit the markets. Once such news is out the people rush to buy it and the major holdings are sold by the people who already knew about such news. Hence it is always noticeable in most cases that whenever good news comes out for a company except the results there are high price fluctuations but all of them come at a time where it is almost impossible for people to gain high returns.

Common and Best Strategy

The best strategy is to invest small in the beginning. This is a method that Warren Buffet suggests. He used to say that start small and keep divesting with earned profits. Hence one should start small and keep his or her earnings into other stocks and diversify the portfolio. This is only possible if the person is constantly tracking and adding stocks to his or her watchlists. In such a method the important factors are not temporary falls or rise, rather the importance lies in looking at the future plans of the company and the scalability of the company. The more product portfolio a company has, the more it would be possible to get higher profits.

If a company posts good results every quarter soon it will be possible for it to raise higher amount of capital from investors and increase its valuation. All the attention and focus lies into the financial track record and company’s ethics in the long run. Investors and fund managers turn towards such companies as higher moral values will stop the company from practising business in bad faith. Also with such motives if a company performs well it definitely has a great future ahead of it. 

Be an early bird to access good information which can benefit the sector or company and utilize it. Such updates can cause a great return in short as well as long term investment plans. Always remember that return into markets is possible at the rate of 10000% time since the initial investment but 100% erosion of invested money is also possible. Hence never invest without proper analysis and knowledge.

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