Ever Considered your self, investing in the Share Markets Industry? Well, you need to filter out your smart steps while doing this and not do the hard work.
The following 7 pointers are considered to be Smart Steps to Start Investing in Share Markets:
1. Screening and Filtering the right stocks using Financials
There are thousands of stocks listed on BSE and NSE and it’s almost impossible to investigate each and every one of them by going through their entire financial information.
Therefore, for your initial consideration, you can use the below easy to implement screening criteria to filter out those stocks whose fundamentals look strong.
2. Select only the companies that you understand
Now that based on the following Steps:
- you have filtered out stocks with good fundamentals from rest of the garbage,
- learn more about these stocks by reading about the underlying company as much as you can.
You can do this by visiting the website of the company, tracking updates on media platforms, searching for the company on Google, and getting peer feedback from fellow investors.
3. Look for companies with a competitive advantage
It’s not enough that you identify companies that have passed the test of financial numbers and whose business models are easy to understand. It is equally important to analyze the company from a qualitative aspect.
In business terminology, Moat is the competitive advantage that one company has over the other within the same industry. The wider the moat, the larger the competitive advantage of the company and more sustainable the company becomes.
4. Find Low Debt Levels
Large debt levels pose a significant risk to the company. Couple of screening criteria which we used to filter the stocks were Debt to Equity Ratio and Current Ratio. These two ratios are indicators of how heavily is company dependent on borrowed capital (debt) to fund its growth and whether the company will be able to meet its short-term capital obligations.
So when you are selecting stocks, apart from these ratios, check out how the company is handling its debt over the past many years.
5. Use financial ratios RoE and RoCE to identify the right stocks
Warren Buffett makes use of these two financial ratios RoE (Return on Equity) and RoCE (Return of Capital Employed) to aid him in selecting the right stocks.
According to Investopedia, RoE is the percentage expression of a company’s net income as it is returned as a value to shareholders.
This formula allows investors as an alternative measure of the company’s profitability and calculates the efficiency with which a company generates profit using the funds that shareholders have invested.
6. Honest, Transparent, and Competent Management
Fraud management is one of the reasons some people do not trust the stock market with their savings. There have been many cases in the past where management of listed companies did shady deals, committed accounting frauds, misled shareholders & SEBI, causing a lot of monetary loss to investors.
7. Right Price to Buy the Stock (One of the Most Essential Smart Steps to Consider in the Share Markets)
If you have reached this step, that means you have narrowed down upon a few stocks to invest in. The only question that remains is what is the right price to buy them? Just want to mention what Warren Buffett said about pricing, “Price is what you pay, a value is what you get”. Find the maximum valuable company by paying a minimum price.
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Also Read: 8 Tips To Invest Your Money in stocks Wisely
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