The Most Authentic Guide on Personal Finance and Investments

Words of Wisdom : "The best time to start thinking about your retirement is before your boss does." ~ Anonymous

A Beginner's Guide to Buying Shares Intelligently

Practically everyone takes a flawed approach to buying stocks. So, practically everyone ends up with a rotten loss-making portfolio. 

So here's a beginner's (or for that matter, even an expert's) list of dos and don'ts...

But remember... you have to do lots of "donkey" work to become a successful "bull" on the stock markets. You must also have monumental Dravid-like patience and play stocks as a 5-day Test Match. A T-20 or even ODI attitude is a definite recipe for disaster.

One. First and foremost, you have to understand and appreciate that when you are buying stocks you are NOT buying some symbols on the screenInstead, you are buying an underlying business. You are becoming a partner in that business. Therefore, you share its profits and its losses. That is why the term... shareholder. 

Two. It is but obvious that you have to buy sunrise businesses. If the products and services of any industry are not in demand, it would be foolhardy to become a partner in such businesses.

Three. However, quite often, two companies in the "same industry" follow diametrically opposite paths... one profitable and the other losing money. The answer to this oddity lies in the quality of entrepreneurship. Good managements make good businesses. Bad managements fail frequently. Backing proven managers is, therefore, the most sacrosanct and inviolable principle of investing in stocks.

Do you know the SIX KEY parameters to buy stocks... and (strictly) follow them?

Four. Sometimes even good managements and good businesses go through tough times. Therefore, apart from ascertaining that the company is running a good business and managed by a good team, you have to ensure that it makes good sales and earns good profits. Never invest in a loss-making company, unless you see strong signs of a turnaround in the near future.

Five. Operational performance is one part of the story. The other significant aspect is its financial foundation. All businesses have to withstand the vagaries of the economy. For example, too much debt may not be an issue during good times. But it can seriously threaten even the existence of the company when economic conditions turn bleak. As such, strong balance sheets are always a dependable choice.

Six.  Wait... a company with excellent business, excellent management. excellent financial strength  and excellent profits, is not the green signal to cut your cheque. No. There is one more critical parameter — its market price. If the price is too high relative to its underlying valuation, even excellent shares will not make money for you. A reasonable PEG ratio determines a reasonable buy. [Read 'PEG Ratio demystified!']

This is the safe, sensible and steady approach to buying shares. It would surely give you a lot more winners than losers. And, to succeed you don't need ALL the players to do well. A few good performances, backed by at least average play from others will definitely win you most matches.

Therefore, my sincere advice would be to never buy stocks if you are not willing to put in hard work and show exemplary patience. Otherwise put your money in the mutual funds and you would still go home wealthy and happy. [Read 'Are you missing out on mind-boggling returns?']

You Learn A Lot By READING... And Even More By SHARING.

Share Button

Ignorance is like a SIGNED BLANK CHEQUE... anyone can MISUSE it.

Subscribe via Email
Books by Sanjay Matai
[Click on the Pic for more info on my books.]
Powered by Blogger.

Total Pageviews