How to choose stock to invest in

 Hello Everyone, Welcome to "The Civil Engineer",  In this article Let me help you pick the right stock for long-term investments.

    most people think that the Stock market is gambling but it's actually a calculated risk of the capital that you employ like that of all businesses. The Stock market becomes a gamble, especially for the traders. Let me first explain to you who is a trader and who is an investor in the stock market.

    A trader is a person who buys stock and sells it in a short period let's say the same day or after 2 days or after a week. They don't hold the stock for a long time. They sell the stock whether they get profit or loss after a particular day they bought that stock. If a stock is bought and sold on the same day they are known as  Day traders. They rely mostly on technical analysis of the stock rather than the Fundamental analysis. Traders don't care about the sales or profits the company makes. They only concentrate only on the price of the shares. They buy the stock during the low of the day and try to sell it during the high of that day.

    An Investor is totally different from that of a trader. Investors always rely on the fundamental analysis of the stock. You may wonder what is technical and fundamental analysis. I will come to that in a minute. Investors hold the shares that they bought for years. They consider buying as stock is like buying a part of that company. They wait for dividends from the company.

    If you want to be an investor you need to be well versed in Fundamental analysis. Fundament analysis is the thing that you need to check before you can decide whether you need to buy the stock or not. The First thing in fundamental analysis is Share holding pattering of the company. See Companies sell their stocks to so many people like the Foreign Institutional Investor(FII), Domestic Institution Investors(DII), and retail investors and some shares may be bought by Mutual funds. The Remaining share will be held by the Promoter himself.

    Based on the Shareholding pattern we can predict how the share price of the company behaves based on the news. Let's say there is a Company "A", in Company A the major shareholder is a Domestic institutional investor. Hence if there is a tight money policy in other nation other than than domestic country it doesn't majorly affect the cash flow of the company and hence shares of the company aren't affected much. But if there is a tight money policy in your own country then the domestic investors get their money by selling their shares in the domestic market. This heavily affects the shares of Company A towards the bull market. In such a situation, Intelligent retail investors sell stocks at a high price before the domestic investors start selling their shares and make profits. Then buy a share of that good company once the price stabilizes at a lower price in such a way you make some profits at the same time you won't lose the share of the good company. This same goes if the majority of the shares are held by the Foreign Institutional Investors.  

    Based on the Financial Statement we can tell whether the company is financially strong and is a cash-rich company. See, whether a company or a person works at its best and takes bold and innovative ways only when they are debt free. So in the Financial statement of each company, they will put the number of assets they possess and the liabilities(Debt) they possess if the Company possesses 50% more assert that their liability, such a company is very good because they can meet up their liability if there is an emergency by selling their assets or they can lend more money by pledging their assets.

    Based on their Market Share, in the past 5 years if the company can maintain a positive market share growth then they are good to go. But by getting penetration more into the market they can able to sell more and can able to make revenue and profits out of products.

    Based on their Dividend Yield, If you are an investor you are buying a piece of that business a company that thinks of its shareholders as a partner shares their profits this is known as a dividend. So pick a company along with all the above criteria which also provides a minimum 3% of dividend per year.

    Based on the Market Price, we all invest to beat inflation. If you don't know about inflation let me explain to you in simple words. The normal inflation rate in the US on average is around 4.5% per annum, which means if you buy fruit for 10$ this year, the next year you need 10.45$ to buy the same stuff. This is known as inflation. In Countries like India, inflation may go up to 7.5% per annum. So if we invest in something that needs to beat inflation. so see the past records of the stock. Then check whether the capital that you are going to employ can beat the inflation percentage by summing the price rise of the stock along with its dividend yield.

    Do some homework on the Management of the company where you are going to put your capital and also their business strategy. Also, read a lot of newspapers, especially the business part and also the major markets of the company the company you picked gets their revenue in such a way you can predict the profitability and sustainability of the company that you picked.

    By Employing all the above points select the stock invest in them and regularly watch them when to sell and when to buy from a long-term perspective. This is one such way to multiply your wealth. Hope this article is helpful for you. share this with your loved ones so that they also have a taste of wealth creation legitimately.


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