7 Key Factors to Check Before Buying a Stock
To earn money by buying stocks in the share market, you must prepare ahead of time and maintain discipline in the face of temptation. If you choose to invest in stocks, making sensible judgments might pay off in the long term.
If you want to buy from the share market, you need to study and assess them before you buy any. As sensible as investing in the stock market seems, not all people can select the right stocks and profit from them. Here are seven things to keep in mind to make a wise choice.
What Exactly are Stocks?
A stock, also known as equity, is a form of stock that represents ownership of a fraction of the issuing firm. Shares, also referred to as stock units, entitle their holders to a portion of the firm’s profits based on the number of shares they own.
Most investors’ portfolios are comprised of stocks, primarily purchased and sold on stock markets. New rules must be followed throughout stock trades to protect investors from unfair practices.
How to Pick Stocks in the Share Market: 7 Aspects to Keep in Mind
- Time Frame
Before purchasing a stock, you must first know your timetable because it is a major factor in deciding whether or not to do so. You can choose a short-, middle-, or long-term investing period based on your money goals.
- Short-Term
Any investment you intend to hold for less than a year is considered short-term. The best investments to make if you intend to hold a stock for less than a year are blue chip stocks that pay dividends.
- Mid-Term
You intend to hold a mid-term asset for between one and ten years. You should invest in high quality stocks from emerging share markets with a modest level of risk for midterm investing.
- Long-Term
All assets you intend to hold for more than ten years are taken as long-term assets. These assets can get you a sizable return and have time to recover if something goes wrong.
- Investment Approach
Some vital tactics that good investors employ are listed below:
- Value Investing
Warren Buffett’s approach to making a lot more money in the stock market is to buy undervalued shares of rival companies.
- Growth Investing
It involves buying stocks whose earnings increase consistently along with the share market. This kind of investor thinks the upward trend in the share market will last and present a chance for profit.
- Income Investing
Last but not least, people ought to hunt for high-quality shares that offer sizable dividends. Stock dividends can result in income that can be spent or reinvested. Before buying stock in the share market, a plan is vital.
- Liquidity
An asset’s liquidity is defined as how easily it can be sold or turned into cash. Both stock exchange sales of an instrument at maturity and borrowing can provide liquidity.
A fund’s liquidity can be judged using the following criteria:
- Lock-in Periods for Assets
A lock-in period is a time frame in the investment cycle during which the investor is prohibited from liquidating the funds.
- Expenses Related to Selling an Investment
These expenses include the following:
- Brokerage
Brokerage fees are what the broker charges the investor for helping to complete the transaction. The rates, or brokerage fees, vary from one broker to the next. Because of fierce competition and low-cost online trading platforms, stock brokers are now responsible for as little as 0.1% to 0.25% of transaction costs.
- Tax on Securities Trading
The purchase and sale of securities listed on stock exchanges are subject to the Securities Transaction Tax, or STT. STT is usually calculated as 0.001% of the sale price of a mutual fund and 0.1% of the cost of a share market transaction.
- Redeemed Item Fees
At the time of the sale of the mutual fund’s units, mutual funds may charge the investor a redemption fee. The points of sales that go toward this fee are charged. Typically, redemption fees range from 0.25 to 1% of the redemption cost.
- Business Size
The risk you take when buying depends greatly on the size of the firm you would like to invest in. It is critical to consider this before purchasing stocks, both in terms of time and risk tolerance.
- Volatility
It describes how much a share’s price or the value of another financial asset can fluctuate. Share market stocks with high volatility experience rapid ups and downs, while stocks with low volatility experience slower ups and downs.
- Equities-Focused Funds
This is mostly made up of stocks with a small amount of debt. Though not as high as true equity, such funds experience high volatility.
- Devoted to Debt
This mainly consists of debt instruments, with a smaller portion going to equity. These funds are more volatile than debt tools but with lower volatility.
- Growth in Revenue and Earnings
You must invest in expanding firms on the share market if you want to profit from stocks. Examining a firm’s revenue and earnings is the best way to tell if it is expanding. It’s important to consider both earnings and revenue because firms can find it difficult to inflate both.
For instance, a business that wants to increase sales may spend more on advertising. As a result, although its revenue will increase, its profitability will suffer, resulting in declining earnings.
- Ownership Pattern
You should learn about a firm’s shareholder model before investing in its stock. Firms with investors who own vital firm stock may prosper in the long run. Investors ought to fund multi-stakeholder firms as well as domestic and foreign investors.
Conclusion
It is possible to be persuaded to buy stock in a company just because you know its name or were told by a credible source. This tactic, though, may reduce your chances of creating a healthy return and raise your risk of suffering a loss.
Thorough research is always vital in the share market. Investing for the long term, taking advantage of dividends, and finding stocks with a track record of success are some ways to protect your assets. Risky and aggressive trading tactics should be avoided if you need more time.
You can visit the Piramal Finance website to learn more about the share market and explore their products and services.