Article

Learn to identify your winning stocks

16 Apr 2018

Many investors are often in a dilemma about which stock to hold for the long-term and which to not. This is an everyday challenge traders face in the stock markets. To invest long-term, one needs to look at specific factors along with focusing on long-term goals and understanding the complete cycle.

Many instances from the past have proved that winning stocks produce better returns in the long term. SIP has produced losses in 10 out of 40 years, signifying stocks in the short run as they are subject to market volatilities.

Hence, it is imperative to understand which stocks are to be held for a longer time. Here are a few points to identify winning stocks:

1. Fundamental analysis: The technical indicators tell us about the health of a company and predict, to a certain extent, its future health.

  • Retained earnings: It tells us about the company’s abilities to pay dividends. Also, historical data will help predict consistency in the company’s performance. If the company is steady enough on its retained earnings, then the stock can be invested for a long term.
  • P/E Ratio: If the P/E ratio of a stock is less compared to industry standards, it indicates that the stock is undervalued. Hence, an investor should hold on to it as it will give high returns in the future.
  • Debt Ratio: This is a useful indicator to know whether to hold a stock for the long-term or not. During economic slow-down and change in monetary policies to higher rates, high debt can be dangerous for a company. However, if the economic situation is under control, then higher debt is acceptable. With further analysis of the other factors, a decision regarding the stock can be taken.
  • Current ratio: Capital ratio is current asset divided by current liability. It is also an indicator of a company’s financial health. A higher current ratio indicates good condition and the stock can be held for an extended period.

2. Macroeconomic factors: Many macroeconomic factors affect stock prices. Hence, one should be updated with these issues to decide on the long-term possession of stocks. Macroeconomic factors help us judge the market dynamics.

3. Political factors: Political instability in any corner of the world, primarily in developed countries, affects the sentiments of people, and they often decide to sell out the stock. It is a significant mistake committed by many. Instead of rushing to sell the stock, one should analyze the effect of the scenario on its share and hold on unless there is a legitimate threat.

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Beginner's Corner

Learn to identify your winning stocks

16 Apr 2018

Many investors are often in a dilemma about which stock to hold for the long-term and which to not. This is an everyday challenge traders face in the stock markets. To invest long-term, one needs to look at specific factors along with focusing on long-term goals and understanding the complete cycle.

Many instances from the past have proved that winning stocks produce better returns in the long term. SIP has produced losses in 10 out of 40 years, signifying stocks in the short run as they are subject to market volatilities.

Hence, it is imperative to understand which stocks are to be held for a longer time. Here are a few points to identify winning stocks:

1. Fundamental analysis: The technical indicators tell us about the health of a company and predict, to a certain extent, its future health.

  • Retained earnings: It tells us about the company’s abilities to pay dividends. Also, historical data will help predict consistency in the company’s performance. If the company is steady enough on its retained earnings, then the stock can be invested for a long term.
  • P/E Ratio: If the P/E ratio of a stock is less compared to industry standards, it indicates that the stock is undervalued. Hence, an investor should hold on to it as it will give high returns in the future.
  • Debt Ratio: This is a useful indicator to know whether to hold a stock for the long-term or not. During economic slow-down and change in monetary policies to higher rates, high debt can be dangerous for a company. However, if the economic situation is under control, then higher debt is acceptable. With further analysis of the other factors, a decision regarding the stock can be taken.
  • Current ratio: Capital ratio is current asset divided by current liability. It is also an indicator of a company’s financial health. A higher current ratio indicates good condition and the stock can be held for an extended period.

2. Macroeconomic factors: Many macroeconomic factors affect stock prices. Hence, one should be updated with these issues to decide on the long-term possession of stocks. Macroeconomic factors help us judge the market dynamics.

3. Political factors: Political instability in any corner of the world, primarily in developed countries, affects the sentiments of people, and they often decide to sell out the stock. It is a significant mistake committed by many. Instead of rushing to sell the stock, one should analyze the effect of the scenario on its share and hold on unless there is a legitimate threat.