Right way to identify stocks for share trading in India
Whenever you sit down at a table to discuss finance and accumulation of wealth, you can never miss talking about stocks. And the obvious reason is because it is super thrilling. Share trading in India is a roller-coaster ride and everyone’s just aiming for more ups than downs.
Many amateur investors in the stock-picking scene believe that there is some secret strategy that, once followed, will guarantee success in the share trading in India landscape.
Let’s set things clear - there is no foolproof system for picking stocks! But there are various opportunities to jump on to expand your wealth through share trading in India. There are a few reasons for this:
1. Many factors affect a company's health and it’s nearly impossible to construct a formula that will predict success.
2. Profits are quantifiable. But intangible aspects such as the company's staff, its competitive advantages, reputation etc. cannot be measured.
3. Human emotions can affect which way a stock goes in certain cases. And emotions are volatile. So the stocks might not move the way you intended it to.
Just as important as considering theory, is determining how well the investment strategy fits your personal outlook, time frame, risk tolerance and the amount of time you want to stay invested and pick stocks.
You might be wondering why stock picking is so important. The one word answer is: wealth. If you train yourself to become an expert stock-picker, you can increase your personal wealth exponentially.
Without further ado, let's start delving into different strategies of stock-picking in the share trading in India scenario.
Fundamental Analysis for share trading in India
Have you ever heard that company X has "strong fundamentals"? But what are these ‘strong fundamentals’ that everybody is talking about?
Analysing a company’s fundamentals will tell you a stock’s intrinsic value, as opposed to the value at which it is being traded. If the intrinsic value is more than the current share price, your analysis is showing that the stock is worth more than its price and that it makes sense to buy the stock.
A company is worth all of its future profits added together. A business is all about profits - plain old revenue minus expenses is the basis of intrinsic value.
Qualitative Analysis for share trading in India
A strong management is the backbone of any successful company. The decision makers residing at the top ultimately make the strategic decisions and have a direct impact in determining the fate of the company. To assess the strength of management, investors must ask the right questions.
Who? Find out who is running the company. Among other things, you should know who its CEO, CFO, COO and CIO are.
Where? Do a thorough search of the backgrounds of these people - where are they from, and more specifically, their educational and employment backgrounds. A management team consisting of people who come from completely unrelated industries should raise questions.
What and When? How do the people in power intend to manage the company? Some managers are very pleasant, promoting transparent, flexible, and a more adaptive way of running the business. While others are more rigid, valuing policy and established logic above all in the decision-making process. You can gauge each one’s style by analysing past actions or by reading the annual report's management, discussion & analysis section.
Once you’ve determined the management style, find out how new or old the team that is orchestrating the company is. Long tenures are good indications of a successful and profitable managerial stint; otherwise, the shareholders and the board of directors would have opted him out.
Why? Does this person have the qualities you believe are needed to make someone a good manager for this company? Has s/he been hired because of past successes and achievements, or has s/he acquired the position through questionable means, such as self-appointment after inheriting the company?
Know What a Company Does and How it Makes Money
Take a detailed look at the company’s product(s) or service(s). How does this company make money? What is the company's business model?
Knowing how a company's proceedings will lead to profits is the basics to determine the worth of an investment. Often, people are hopeful about how profitable they think their stock will be, but when asked these fundamental questions, they falter. If you aren't sure how your company will make money, you can't be sure that its stock will give you returns. Check out Our Recommendations-Click Here
Scan the Industry/Competition
Apart from knowing the company in depth, you must also analyze the characteristics of its industry, such as its growth potential. An average company part of a booming industry can provide solid returns, while the same company in a doomed industry will have the opposite effect. Although determing the company’s future growth relies on approximation, but with common sense you can figure out the difference between the growth prospects of, say, a high-tech industry vs. the railway industry. You have to ask yourself if the demand for the industry is growing.
Market share is another important factor. If a mammoth player is dominating the market, anyone trying to enter this market faces huge obstacles because the giant can take advantage of economies of scale. Although one might argue that the top spot is not permanent for anyone, investing in a company that tries to take on the Big Gorilla is a risky venture.
What’s in a Brand Name?
A valuable brand reflects years of product development and experienced marketing.
Some stock-pickers steer clear of any company that revolves around one individual. This is because if a company relies solely on one person, any negative news or doings by that person reflects directly on the company’s share performance.
Assessing a company’s DNA and determining whether you should invest is a huge journey, and if you take it with full dedication, it’s sure to get you returns in the share trading in India arena. Get latest market Updates-Click Here