Finding the right stocks for long term investment is crucial for successful financial planning. Whether you are a retail trader or an investor looking for long term investments, reading market analysis by other experts is not enough. You have to become a stock analyst to make informed investment decisions.
Identifying the right stocks that meet your investment strategy and goals is daunting, but if you can analyze and research the company on your own, you can become a profitable investor. You need to know about both fundamental analysis and technical analysis to find the right stocks for long term investment. Also, it is equally crucial to understand the difference between value investing and intraday trading.
3 factors to consider while choosing the right stocks for long term investment
The price of company stocks varies every minute, and company management is a major decision-making factor. You have to learn about the company’s top management, which influences the company’s stock value. No company can have an upward trajectory all the time. Knowing the management team will help you predict the company’s future path.
2. Financial Statements
All companies must make their balance sheet, cash flow statement, and income statement available for public use. The numbers in the financial statements indicate the company’s growth trajectory. By looking at profit margins, sales, and future profitability, you can predict whether the company will have a secure future. You need to compare the company of your choice with its rivals to understand the scope among its competitors before you decide on online investing.
3. Stock Pricing
When you consider investing in the capital market, you have to understand how a stock is priced. You need to identify whether the stock is undervalued or overpriced.
- The price to earnings (P/E) ratio indicates how much investors pay to earn one rupee by investing in the stocks. This number is an indication of overpriced or underpriced stocks.
- The price to book value (P/BV) indicates whether the stock is underpriced or overpriced.
- The debt to equity ratio indicates the leverage of the company.
- The operating profit margin (OPM) shows how much profit the company has generated.
- Enterprise value by EBITDA (EV/EBITDA) gives a valuation of the company’s earnings while including debt during evaluation.
- The dividend yield shows the amount of profit you will make per stock.
These figures will help you determine whether the company is moving towards growth. None of the ratios can be used in isolation to determine whether the company is worth investing. Instead, you should consider all the figures before making the investment decision.
Generally, traders and investors are interested in getting the best value when they invest in the stock market. Many investors lose focus on what they want from the company by focusing too much on the technical parameters. Warren Buffett, the infamous investor, encourages other investors to study the company and understand its purpose. You should not invest because the stock price will likely go up in the future. You should wholeheartedly believe in the value of company stocks before investing in any stock.
Furthermore, you need to know about your risk tolerance to avoid making disastrous investment decisions that could wipe out your bank account. Studying a company takes time and patience, but you can get the best possible returns if you make an informed investment decision.
Here is the list of Nifty 50 stocks in India that you can study and begin your investment journey.
Happy Investing 💰
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.