How to select best share for long term investment ?
Everybody wants to become rich but no one thinks about investing. People keep working day and night and earn money. But the value of their earnings was eaten by inflation. In this article, I am going to explain the long-term investment and How to select best share for long term investment ?
Wealth creation is possible in many ways. But the most prominent and easy way is investing. The only quality required for an investor is patience. Because the value of the investment doesn’t go to upraise over one night; It takes time. If you are ready to take that test the next step is selecting the right choices for your investment. Here I chose investing in stocks because By share market investment you are becoming a part owner of the company. You possess every single privilege of the owner.
I am going to explain my own experiences in stock market. I started my share market investment 5 years ago and I have made some terrible mistakes in it. Now I only chose stocks for investment from studies that I have made from my own experience.
The first thing is hidden gems are always hidden. I don’t waste my time chasing those stocks. I only consider companies that are even heard of once. It may be from Social media, News, Magazines, or even from my friends or relatives. If I heard of some stock like that then the process is analyzing its performance.
The next thing I just google it….. Because "Google" is the most powerful tool for anything. Google tells us everything but “never trust everything”. In the first impression If I got negative feedback from the company. I will surely drop it at that phase. I will never continue researching those stocks. If the company passes through that phase, goes to the next step...
The next step is finding some ready-made analysis of the company. Several websites provide us with stock market studies for free like Screener, Money Control, Economic Times Market, etc. From these sites, we get regularly updated stock analysis. I will go through it for getting a clear cut on the company's performance. You may be confused about what values should be looked upon. Check everything it's free...
Here I suggest my favorites. Intrinsic value, P/E Ratio, ROCE & ROE, Quarterly results, Pros and Cons of the company, Market Capitalization, Promoter holdings, etc. Let me explain briefly those terms. Intrinsic value tells me, the discounted price of the stock. If the stock's price is lower than its intrinsic value, it is very good. A lower P/E ratio shows the proper management of the company. ROCE & ROE gives ideas on the profitability and debt of the company. Quarterly results give the recent performance of the stock. If the company has higher promoter holdings it indicates that the promoters have good faith in future performance. I think it is now clear Why I am looking at these values?
If the company can be considered after this stage, the next thing is my study. This part is the most important in choosing long term investment stocks. Because everyone will tell us lie, but our studies can always be trusted. Now we will be confused about How to analyze the company by ourselves. We can make a study on every company in our way. The method of analyzing the valuation of a company for long term investment is called Fundamental Analysis. On this page, I have been doing a series on Fundamental analysis. Here I am providing all those links. Check those after reading this entire article. The tool required for fundamental analysis is the Annual report of a company. I have already explained everything in this area.
Fundamental Analysis Part I - Introduction to Indian stock market and commonly used terms Fundamental Analysis Part 2 - Introduction to fundamental analysis
Fundamental Analysis Part 3 - Tools required for fundamental analysis
Fundamental Analysis Part 4 - fundamental analysis of stocks
The major part of the selection of a stock is complete now. If the company you have chosen has passed all these tests, then it can be surely considered for your investment. The procedure is not yet complete. Now you have the best stock to invest. The next part is much more important for starting your investment.
It is the proper balancing of your investment. I will demonstrate this to you with an example here. The below figure shows the daily chart of Tata motors.
In Dec 2019, during the Covid-19 pandemic outburst, the market went down and the bearish market persisted for almost four months. If you have taken an entry position there, it will be the worst decision you have made. You must have been waiting for the next entry point. In April 2020 stock market regained its strength and gave a huge rally. In the case of Tata Motors, it almost multiplied by six times. You would have entered at that point for a perfect investment.
The thing I was trying to explain is long term investment is not only finding the best stocks and keeping your investment still. It also includes the procedure of perfect balancing. If a bear market arrives you should have to exit your position until the downtrend exterminates. Stay by cash in the bear market and keep invested in a bull market.
I think the entire aspect of a long-term investment is covered here. If I have missed any major parts, please let me know through comments. I am a long term investor and the important ideology I keep is valuing my money. I always chose value stocks over growth stocks. Because value investing is the future. Your money deserves some respect. Buying a 100 rupees shirt for 1000 rupees is not fair, even if the shirt is made by a major brand. I have already made content on stocks that I'm invested in now, "My Portfolio".
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