Five Rules to Follow When Choosing Stocks

The stock market is like an ever changing machine, a machine you try to best and each time you are close to it, the machine brings a better version of itself. You can never win the market but you can make wise decisions. Picking the right stock is one such wise decision, here are some tips to help you. 

1.    Simplicity

“Never invest in a business you cannot understand.” This simple statement by legendary investor Warrant Buffet is perhaps the most golden advice when it comes to picking a stock. When you have a firm understand of a company, its workings, and its business model; it’s easier to buy their stock than to buy one which is complex in nature. If a set of IT stocks are BSE top gainers today but you don’t understand what they do. Don’t buy their stock for it will lead to losses for you. You can never make money from what can’t understand.

2.    Dividend

A good way to pick a stock is the dividend paid by companies. The dividend is basically the payout to investors by companies which make profits. If a company pays out stable dividends or increases it every year, it means the company is making profits and has a positive outlook while declining dividends sends a message that the company is keeping money close to itself and is facing tough times. Good dividends lead to better market valuations.

3.    Future Adaptability

With the influence of globalisation, a company preparedness for embracing the change is also a good sign of whether its stock will bring you profits or not. Nowadays, a news in the USA can influence stock prices in India. Today’s NSE top gainers can be bleeding a week later losing if America puts a hold on H1 B visas. If a company can withstand such news or policy decisions and perform well, that’s a sign of a company with a strong business model and flexibility. If FDI is pemitted, can a company be able to withstand competition or bear the sudden inflow of capital? Such questions will give you a good idea of a stock’s future performance which is where the big profits are made.

4.    Debt

In the world of commerce, undertaking debt is a natural thing. However, be mindful of companies with excessive debt in their kitty. Debt puts enormous pressure on companies with repayment and interest. If there is an indication of an economic downturn, it could mean a whole lot of problems for the company. For instance, Kingfisher Airlines had to shut shop because of extreme debt add to that, a bad time for the aviation industry. Companies with a lot of debt aren’t treated kindly by rating agencies which in turn has an adverse effect on the stock price.

5.    Check the brand name

After all these points, if there is one thing you can look to before deciding whether to buy the stock or not, it’s the brand name. A good band will ensure it performs well over a long period. A good brand has solid business fundamentals with a strong ability to cope with any issue. For instance, Tata is one of India’s oldest and trusted brands. The name is enough to invoke trust. Buy stocks of such brands.

These rules can help you buy a good stock. However, if you are new and need professional advice, head to Angel Broking, they offer the best advice backed by excellent research data to make your decision easier.