July 23, 2019
Choosing the right stock, the right way.
In life, your success is the result of the different choices you make, compounded over time. All the vital and trivial choices you make, make you. This holds true for your investment portfolio as well. Finding the right investments can be confusing and exhausting, especially if you are investing in a foreign market. However, if you dedicate the time to understand your own needs, do the research, and recognize the risks involved, you will see that it is not rocket science. Here are some things to keep in mind before you invest:
1.) Trust what you already know: Instead of going in a completely unknown direction, begin with industries and companies you are familiar with. This is in line with the Circle of Competence concept developed by Warren Buffett and Charlie Munger. Knowing a specific sector or company will help you better understand the different investment opportunities.
2.) Do your research: Understand the patterns, and do not listen to the rumors. Do not invest without fully understanding a company’s revenue model. Dig out its past financial records. Find their official reports filed with the SEC. These are usually available in the Investor Relations section on the company’s website. Look for consistency instead of sudden growth.
3.) Take calculated and smaller risks: The market promises nothing. Losing a lot of money as an amateur investor can be a major blow to your confidence. You can not get rich overnight. Invest small, and focus on gradual growth.
4.) Look at the price-to-earnings ratio (P/E ratio): What does it mean for the share price to be cheap or expensive? One method to evaluate the value of a share price is to take the P/E ratio of the company and compare it with that of its peers in the industry. A high P/E ratio means that investors have high expectations of the company’s growth. It could also mean that the share price of said company is overvalued.
These are just some of the “do’s”. In future posts, we will share more of these as well as some of the “don’ts”. As Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” Spend some time learning, spend some time learning by doing, and spend some more time learning from your mistakes. Eventually you will have enough to spend without worrying!
This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.
Our team members at Vested may own investments in some of the aforementioned companies. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.