Beginner Series: How to Choose a Stock?

I have had this question many a times when I get to invest in the stock market. There are so many companies listed in the stock market and which one should I be picking up? I am sure most of you would have a similar question. How I did go about finding the right stock is just random. I did not know how to value a stock or how to analyze the stock. The very first stock that I picked was just random. I just thought of searching a company with starting letter’ S’ and I wanted that company to be a FMCG one. That is it. No other rules.  🙂

That is not the way to choose the stock and I am sure that you know it better than me by now. These are my suggestions to pick up the stock. Choose a company that is familiar to you say in the world of finance, say ICICI bank. If you have your savings account in that bank, you will know how the services of the bank are and you will also know how it is doing in market. That is a fair knowledge about the bank you are banking on. If you know nothing about it, then nothing to worry, get to know about it. This is a good way to know about your bank where in you have trusted and kept the money.

Choosing a company based on the knowledge of your know-how is easy and then learning about it is difficult. It takes time. Be patient with yourself and just keep it cool. Learn about the business and how they are doing business in comparison with other market players. What was their last quarter’s profit or loss, how have they fared and also have a look at the last year’s financial status of the company. It is a new thing for you, just start your analysis. Don’t overload yourself with too much information. Just get to know the details which will help you in your analysis of the company.

Once you have collected enough information regarding the company, make an educated guess of the stock’s position in the next quarter.  You can’t predict as of now. Since it is all new and there are experts in this field who fail miserably at times giving wrong suggestions. I use the word guess for that reason. I believe that market is just random, nothing can be predicted accurately. It is just a guess, if you can make educated guess then things might get better.  This kind of analysis is known as Fundamental Analysis.

Fundamental Analysis is about using the real data from the market to evaluate a stock/security’s value. Mostly this kind of analysis is used for stocks but in general you can use this method to analyze various other investment vehicles. I don’t want to give out wrong signals to young investors. There is one other way of analyzing the stocks called Technical Analysis, more on that on a later note. When you start investing, make sure you analyze the data properly and then step into the world of stock market. It will be a good start for your investing career. Just don’t jump into the stock market blind folded by listening to someone. Do your analysis and then decide and invest.

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