Five Easy Steps to Take While Investing in Stocks | When a smart investor discusses stock investing, the goal is to purchase high-quality stocks at a reasonable price. This is something on which we can all agree, correct? In addition to this, though, a strategy must be in place. Following a theme when investing in stocks would make the entire investment process more comprehensible and accessible.
ALSO, READ: How Much Money Can You Make By Trading?
Let’s talk about the five different approaches to investing in stocks.
1. Investing That Is Index-Inspired
Index-inspired investing involves buying equities from major stock market indices. Indexing? . These indices contain fundamentally strong stocks. I follow Sensex, Nifty 50, and Nifty Next 50 stocks. Following these three indices yields 100 fundamentally good stocks.
Then, we can proceed with the following steps:
(a) Build a watchlist: Create the watchlist in a spreadsheet using Google. It will have approximately one hundred number stocks, as selected above. Tracking the live price along with other stock data can be done with the use of Google sheets.
(b) Observe the Pricing Trend: As soon as the list is complete, you can begin monitoring how its prices have changed over the past several days and months. You are also free to determine a target purchase price for your stocks if you so desire.
(c) Aim for a Stock: The objective here is to zero in on stocks whose prices are going down. When the current price of the stock on the market becomes closer to the price you want it to be, you should start buying it. The general rule of thumb is that a price drop of eight to ten percent is required to make a stock interesting.
It’s one of the easiest ways to find fundamentally sound stocks at fair prices. This trick can help busy people learn stock analysis.
2. Strategic Value Investing
With this plan of action, we will be looking to acquire underpriced stocks. Value investing entails purchasing stocks at a discount to their true worth. Investors get a “discount” while purchasing these shares. A professional value investor can only afford to buy stocks when they are on sale.
Again, we’ll need a short list of excellent stocks to put this strategy into operation. Again, we may use the Nifty 200 Index as a basis for compiling such a list. There are a lot of stocks to keep an eye on, so I recommend adding only 60-65. Don’t add more items to the list than that; any more will make it impossible to keep track of.
Again, the best way to organize a watchlist is in a Google spreadsheet, as mentioned in the first bullet point.
Create a new section labeled “Intrinsic Value” once you have completed the list. Take into account the stocks’ true worth as you compile your list. You should figure out the true worth on your own if you can. If you’d rather, you can utilize our stock engine instead.
To calculate an approximation of a stock’s true market value, The Stock Engine employs its own proprietary algorithm.
What should we do now? Most of the time, the market price of a stock will be higher than its true worth. For this reason, we keep an eye on the market and make a list of stocks to which we might want to pay attention if and when prices drop. Any time a stock’s current price is close to its intrinsic worth, it merits serious scrutiny.
3. Market Expansion Capital Investments
The goal of a growth investor is to outpace the market average through the purchase of stocks of firms with strong growth prospects. The idea behind this approach is to put money into businesses where the earnings growth rate is anticipated to be high. The potential for future growth is more important than the company’s existing earnings or dividends in this investment strategy.
Once again, we’ll look to the companies that make up a reputable index for guidance. To compile a foundational list of equities, I intend to employ a broad index like the S&P BSE 500 Index. As soon as the list is complete, the following criteria should be used to narrow it down:
Past EPS Growth Rate Filter: Include only stocks with a strong EPS growth rate in the past. Three or five years is a good benchmark to utilize for assessment. Any stocks with earnings per share growth of at least 12 percent are good candidates.
Price-to-earnings Ratio (P/E): At this stage, the filter is applied so that only stocks with a P/E greater than 30 are allowed. It’s important to stress that this discussion is not about stocks with a low price-to-earnings ratio. It is our intention to feature stocks with a high P/E ratio. To put it another way, investors are willing to pay a premium price for stocks with rapid growth.
With these two qualifiers in place, we can identify the companies with the highest PEs and the highest historical EPS growth. Finally, you can utilize these stocks to compile a final watchlist, as described in the first bullet point.
It will be worthwhile to consider buying any of the stocks on this list once their prices have fallen by 8-10%.
4. Finances With a Profitable Potential
Income investing from dividends involves buying stocks of firms that offer monthly dividends. ц Dividend payments have been steady for such corporations. Steady and growing dividends can augment other income streams, but it takes time to reach that position.
ц Many of these companies are blue-chip. Such corporations believe in profit sharing with shareholders through dividends.
Do the following:
Dividend History: Only companies that paid dividends in the last 10 years should be included.
Profitability: Only profitable firms will be listed. Businesses whose net profit (PAT) was negative, regardless of dividends, will be removed from the watchlist.
Tracking prices: They become attractive for investing after a price decrease of 5-6% or more.
These stocks tend to be expensive. So, buying them only on adjustments is necessary. ц We’re not buying these stocks for their meager dividend yield, right?
If you acquired TCS stocks in January 2013, for instance. Then, Rs.676 per share. It distributed Rs.22 per share on March 13, 2013. It pays 3.25% dividends. On Mar. 22, TCS paid an Rs.47 dividend. Your dividend yield is 13.9% after the 1:1 bonus share issue in March 2018. If TCS’s dividends had been utilized to buy more stock over the past decade, the dividend yield would have increased.
5. Trading With A Stock Screener
A successful plan for investing in stocks should also include the utilization of a high-quality screener. A person might create their very own original theme by using the use of a screener. Say you want to limit your investments to stocks that have extremely rapid increases in their revenue. You can filter potential investments based on this revenue criterion by using a stock screener.
In addition to that, I use the HUGE SCREENER function of my Stock Engine to narrow down my search for extremely profitable company stocks. Filtering equities according to their level of return on equity, return on capital employed, and return on invested capital can be accomplished with the help of certain metrics. After compiling a filtered list of the stocks that meet my criteria, I then add them to the watchlist that I maintain. Only until their prices have dropped by eight to ten percent do I make an offer on them.
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