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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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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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.