Stock picking is tough, and therefore you must always do your due diligence before proceeding. Today, let me share you my developing on going strategy, which I recently followed to select a stock.
An Amateur approach to Stock picking:
- I hear about Stock in news, among consumer, from friend or are a consumer of the product yourself, have seen that soap Ad and wonder whats the brand behind this successful Ad.
- I google search to see the stock price and trend (least helpful), but tells you if it is fine or it is very fluctuating something that happens when stock has very low volumes.
- I log on to simplywall.st (you can check the company site if you can or some other site where you can read up about below information) –
- The Area graph of company (for look and feel and comparison among alternative stocks), check Fig 1 below.
- Current Price of the Stock is it fair, over or under value (not doing any calculation as an amateur), check Fig 2 below.
- Finance Analysis, the part I read carefully and specifically focus on Debt (in current Covid scenario it becomes even more important), check Fig 3 below.
- Head on to Moneycontrol and look for (check Fig 4 below)-
- P/E (Price to Earning) ratio of the company compared to the Industry (it should not be way below or above). A low ratio indicates company is undervalued, high indicates its overvalued.
- P/B (Price to Book) ratio, how is the stock trading with respect to its book value. I prefer usually a little higher than 1, but it may differ based on sector.
- Look at the Sector, for example – if the Stock is ITC, FMCG or Consumer Staples being the sector how will that be in near future.
- Current Geo-political or Economic scenario (remember only in long run stock market correlates with a nation economy)
But Salrite I do have some extra time, Are we done? – well, perhaps you can:
- Look for Consumer Sentiments on the Product, dig up the Social media see if you can find something about its product/services
- Management Information how is the company management.
- You may also look at other ratios like EBIT, or EBITDA; I usually don’t to avoid paralysis by analysis.
- Check if the Stock pays Dividends or not?
Remember – No Matter how much you analyze there will always be some risk involved, and there is no guarantee the stock you pick will give you good return no matter what others say! So If you are new to this game and are passively into it, please go for a low cost Index fund, here is my article explaining why?
Thank You for reading, Happy Investing!