Long term investing is one of the easiest ways to earn money from stock market. However, there are matrices that need to be fulfilled before you invest in the stock market. You cannot go and invest in any company. Before investing your hard earned money you should analyse the company properly.
Before you start investing in the stock market, you need a Demat account. Online Demat account opening is very easy nowadays.
Here are some of the things to take care of when selecting stocks for investing.
1. Check out the financials
There are thousands of stocks listed in NSE and BSE. It is simply impossible to go through the financials of all the stocks. You should first understand what type of companies you want to invest in. Some people want to invest in only large cap companies, or mid-cap companies or small cap companies. Some people select a mix of all three.
2. You should understand the business
You should invest your hard earned money only in companies that you understand. When you buy a stock you are essentially buying an ownership in the company. So it is very important that you understand the business. You should be able to identify factors that will affect the business in the long run. You should be able to understand all the operations of the business.
3. Your company should have strong competitive advantage
There is no doubt you will want your company to be the best in the market. Your company will be the best only when it has some competitive advantage over its peers. Examples of competitive advantage would be brand power, large customer base, barriers to entry, monopoly, etc. When your company has some competitive advantage it would be very difficult to replace the company.
4. Select low debts company
Debt is not good for any business. Yes, businesses needs loans to expand, however, the debt should not be too much. You should select companies that have low debt to equity ratio. When a company raises money from bank, they have to pay interest on it. This interest payment hampers their balance sheet.
5. Management should be transparent, honest and competent
Management is the most important aspect before selecting any stock. As already stated you are buying an ownership in the company. So the management of the company should be very honest. You would not want to be involved into some scams and other things. This would affect the stock price.
6. Buy the stock below its intrinsic value
Intrinsic value of the stock is the right price of the stock. If the price is above the intrinsic value it is said to be overvalued and if the price is less than intrinsic value then it is called undervalued. Your task is to buy over sold stock at a discount.
Stock investing is a very easy way to become wealthy. However, you would need a Demat account for the same. You can open a Demat account with 5paisa. If you’d like to learn smart ways in which you can invest your money whilst running your business, look into The Really Useful Information Company.