Putting your money into something is a big deal. It should be – it is your hard-earned money. But, this is when you become extremely cautious. How to decide on the stocks to buy or invest in is quite an important part, or should I say the most important part of investing in the stock market. Your whole success and risk-reward ratio depend on this decision that you make. Moreover, the stock market is bigger than ever now, with loads of options to choose one, it is hard for us to know which is the right one, moreover with the ability to overthink, that’s all we can think about. So, here let’s talk about knowing how to decide which stocks we buy. Without waiting any longer, let’s get started.
Why is it Important to Make Calculated Decisions in the Stock Market?
The stock market is full of opportunities – we all know that. But there is also something we cannot sugarcoat – and that is the risks. Whether you are risk-averse or willing to take a big load of risks, they are still risks. Thinking about investing in the right kind of stocks for yourself is the very first choice you need to make when it comes to investing. This is an opportunity that you can use and minimize the possibility of losing any part of your hard-earned money. It’s more like choosing the right track to run your race in, and the right track is the only thing that takes you to the destination.
Determining the Stocks to Buy
Does the Company have High Volume Stocks?
Bet you have heard about top volume stocks. The higher the volume of the stocks – the more you can rely on them. This means that when a stock has a high volume, investors are interested to buy it. If the stock has a low volume it means it doesn’t attract that much attention. High-volume stocks are a big yes for your investments. So, think about high-volume stocks – if everyone is interested in it, it does have something to offer.
What is your Risk Appetite?
Risks are everywhere but determining how to deal with them is key. You could be someone just starting off in the investment market, and investing in stocks could be your very first investment. For someone like this – the investment should usually be something small, still consistent. You can choose stocks that will give you dividends or won’t lose your capital.
Since you are just starting off, you mostly don’t know the market well, and there is a high chance you could lose what you have. Instead, you can choose your investments based on your risk appetite. If you are already a pro player of the market or are only investing what is left – you can use this opportunity with high rewards-high risk stocks that go both ways, but if you make it, you meet the jackpot.
How Long Do You Want to be Invested?
This is associated with your goals. Your goals play the most important part in the investment. If you have invested in a fixed deposit, you know why you have invested. You don’t just lock money in for no reason – you do it for a cause. This could be anything. It could be paying off a loan or buying a new car. The same thing applies to the stock market. When you invest in stocks, draw goals for why you are investing. If you are investing for retirement in your 20s, there is a long time. You could be invested for as long as 30 years, which is a long-term investment. Investing is long-term, but you can base your investment on the time limit and choose stocks that will help you in the long run.
Know the Price to Earnings Ratio
The first thing you need to understand is how to find the price-earning ratio. It’s not quite hard. You can find the price earning ratio by comparing the market price to the cumulative earnings of these four quarters. You can compare this number to other companies similar to the one you are looking at. If the company you are interested in has a higher price earning ratio than the other company – there is a reason. If it has a lower price earning ratio but is growing quite fast, that is also an investment that is worth it.
Now, this may sound easier if we go about it through an example. Let’s say you are about to hire a personal financial advisor for your investors. Your friends tell you about one who earned you a rupee for every 0.1 rupees you invest. Now he also tells you about every penny you make on your investments.
But there is one thing. It is quite expensive. His earning from your income is much more than any ordinary financial advisor. On the other hand, you have a financial advisor who charges you much less. But, he is new to the profession and does not have much of a track record. This could have been a clear picture of the price-earning ratio.
Conclusion
Now that you know some key points on how to determine which stocks to buy, it would not be hard to move forward in your investment journey. With the right set of tactics up your sleeve, you can achieve your financial goals through stock investments in no time.
