1. Invest in Growth Stocks: Growth is one of the most important terminologies when it comes to the stock markets. Invest in companies that you believe (based on verified data) have a strong growth potential going forward.
2. Do not Just go by Recommendations: Never buy a stock going just by the recommendations you may have received from someone. Ask yourself what is the basis of such recommendation. Cross verify the authenticity of the information that is at the base of such recommendation from multiple sources.
3. Keep Yourself Informed:
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| An Informed Investor Wins! Everytime! |
Keep yourself informed about market events and play your cards accordingly.
4. Keep an Eye on Debt Levels: I always tend to stay away from companies that have high debt levels on their balance sheets. Given the high fixed debt costs, even one bad earning season can strain the resources of the company. If you ask me, I never invest in companies that have a debt to equity ratio exceeding 1:2.
5. Pack you Instincts in a Bag: When it comes to the stock markets, it is always wise to pack your instincts in a bag and keep they away. Base your investment decisions on facts and not on instincts.
6. Not all IPOs are Worth It: Most people consider IPOs to be safe investment bets. This view is not entirely true and several IPOs in the past have listed at a significant discount to their issue price. Remember to analyse an issue before deciding to invest in it. Read my guide on the Factors you should consider before investing in an IPO.
7. P/E Ratio can help you Pick the Right Stocks at the Right Time: Success in the stock markets can come only by picking the right stocks at the right time. And Price to Earnings Ratio can help you in this regard.
Fundamentally sound and profitable companies with a low P/E score (compared to peers) can present a good buying opportunities for the long run. This is because their growth potential is yet to be captured in their Market Price. Read: How to P/E Ratio to take Investment Decisions.
8. Consider Cash Flows: Cash flows are one of the most important metrics that you should consider while zeroing in on a stock to invest in. Companies with positive operating cash flows are able to generate enough cash to finance their operations. On the other hand companies with a negative cash flows need other forms of financing (often debt which again has costs) just to keep their operations going. Companies with negative operating cash flows are to be kept away from as they are experiencing significant difficulties to even keep their operations running.
9. Learn to Interpret the Financial Statements: If you don’t know how to interpret a company’s financial statements, start leaning from today. A company’s financial statements can give you significant insights into the operations and the financial well-being of the company to base your investment decisions on. For example, you can find information on the companies operating cash flows from its ‘Cash Flow Statements.’
10. Value Pricing Power:
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| A Company selling a Homogeneous product like a Banana has no real pricing power over its competitors |
Companies that command pricing power over its competitors are good investment bets for the long run. Companies that command pricing power are often the ones that have a strong brand presence and have a ‘unique’ product that differentiates from its competitors’ . Pick them at the right time and you are sure to make some big money.
Hope you liked my little presentation. Tanks for your time and happy investing!
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