Stock Picking is exceedingly challenging. It requires analyzing a large amount of data and making an investment decision in the current global economy.
In this guide, we will start by presenting you with different scenarios through which you can analyze your financial situation and determine which approach is most suitable for you. After that, we will go through a step-by-step process to identify the best stocks.
This process will also include reviewing some of the research processes using which you can see Institutional Investors‘ shareholdings and where they are investing. The point is to develop reliable guidelines that can be used as a benchmark for your investments to yield safe results.
Four Initial Steps For Stock Picking
Nonetheless, there are actions you can take to establish a screening procedure that will assist in sorting through the vast array of concepts and identifying a reasonable number of stocks that require additional research(which are explained after these steps).
1. Find an Investing Theme
Some investors begin their search with a sector or theme with strong growth prospects, but it is less popular now. For instance, following the early 1990s real estate crisis, several investors preferred building equities due to the possibility of increasing household formation.
Others look for robust but still-developing industries because of their excellent long-term foundations. Over the past ten or so years, healthcare has become increasingly important due to the aging baby boomer generation. Starting with a theme can create a smaller universe of equities.
2. Analyze Potential Investments with Statistics
After finding a good investment idea, the next step is to narrow down the huge number of possible stocks. Market capitalization, found by adding up all of a company’s outstanding shares and present stock price, is a good way to figure out how big it is. People are familiar with big names like Apple and ExxonMobil. Other themes could lead you to look into smaller players in niche markets like ethanol or modular rentals.
Growth potential and dividends: The growth chances become clear once the size is chosen. Sales, earnings, and other key measures often grow quickly in early-stage businesses or industries. On the other hand, mature businesses tend to grow more slowly but steadily. This also affects dividends: smaller companies spend their cash to grow, while bigger companies may give out extra cash as higher-than-normal dividends.
Financial statistics tell you a lot about a company’s financial health. With its cash and short-term assets, a company’s liquidity ratio shows how well it can meet its short-term commitments. Debt numbers show how much debt a company has and how well it can pay its bills. Lastly, profitability statistics show how well a business makes money from its assets, investments, or equity.
Furthermore, there are parameters for valuing stocks that help you determine if a stock’s price is fair compared to its revenue, assets, book value, and other factors. Some common ways to value a business are P/E, P/S, P/B, and EV/EBITDA. By looking at these measures, you can find undervalued stocks with good investment potential.
Remember that this is only the first step in the screening process. Before investing, it’s important to learn more about each company, such as the industry analysis, the rival landscape, and the quality of the management.
3. Building a Stock Screen
For professional investors, several software programs and financial sites offer screening tools. Brokerage companies and websites for financial media are also good sources of information for creating effective screens. Before creating a screen that fits their needs, investors need to be clear about their investment goals, taking into account things like time frame, tax effects, and risk tolerance.
Take the example of a 22-year-old investor who just got a job after finishing and wants to make good investments with the money he received as a gift. He likes early-stage companies with a lot of growth potential because he has a long-term view, wants to pay as little tax as possible, and is willing to take on a lot of risk. As part of his screening process, he looks for companies in early-stage businesses that are growing quickly and have a market capitalization of less than $1 billion. Other criteria include certain ratios. The P/S ratio determines how much a company is worth because early-stage businesses usually lose money.
Let’s look at a different situation now: a woman who just retired and has no children, little long-term debt, and a lower risk tolerance. She wants to ensure that her savings last as long as she does. In this case, she favors mature companies with little room to grow. Her screening criteria changed to mature industries, companies with little or no growth, bigger market capitalization, and certain ratios that stress strong liquidity, low debt, and high return. P/E, P/B, or EV/EBITDA ratios determine how much a business is worth. Low multiples and high dividend yields are preferred for the safety and security of income.
Because each user has different financial goals and risk tolerances, making custom screens fits those needs. This shows how flexible and adaptable professional screening tools are.
4. Here Comes The Deep Analysis
Even though initial screening filters help narrow your financial options, you must do more research before choosing individual stocks. This more in-depth study looks at more than just quantitative metrics. It also examines qualitative factors relevant to your business thesis and personal preferences.
Once you have a short list of good options, use all publicly available information for a full analysis. Read each company’s SEC filings, yearly reports, websites, and investor presentations carefully to get a full picture of its financial health, the competition, and its plans for the future.
Remember that this in-depth study gives you the power to make smart investment choices that fit your financial goals, show your values, and follow responsible investing principles.
How To Search High Stocks for Investing & Trading
Since we have given a preface to the stock picking, now is the time to find a method using which you can shortlist companies/funds. Always remember, the deeper you dive into the investment research, the smarter your decision will be! Below, we have mentioned a simple step-by-step guide. In this guide, we have used trendlyne.com to do the research! You can also find some similar websites to aid your research!
1. Search Trendlyne in your search engine.
2. Click on the official Trendlyne link!
3. From the action menu, click on the Superstars option.
4. Once you open the Superstars Page, click “Institutional Investors.”
5. Here, you can view a list of banks such as the President Of India, SBI group, HDFC group, ICICI group, Reliance, the Government of Singapore, etc.
6. Now comes the real part. You can start your research from this list by determining which bank is investing in which stocks. Click on that bank under the “Bulk and Block Deals.”
As you can see in the reference image attached above, you can view the extensive list of stocks in which the particular bank you have chosen has invested. This table provides all the details regarding when that bank bought that stock, etc… Furthermore, you can also do some extended research by examining the history and market performance of these particular stocks on the Internet.
7. Now, since our purpose is to sail by the safest route. Prepare a list of stocks that these big banks have purchased. After doing the technical and fundamental analysis, you can narrow down a compact list of profitable stocks into which you can invest.
I would like to mention that this is a simple and effective method to pin down possible profitable stocks. Investments should be made only after thorough analysis at your own risk, even after experts’ advice if needed!
To Wrap It Up
Choosing stocks can be hard because there are many things to consider. This guide has given you a neutral and objective framework to help you understand the process better by describing different steps and ways of doing things to think about.
The steps and information about how big investors act are helpful starting points. However, it’s important to remember that personal research and professional advice are still necessary to make smart decisions.
Highlighted Points To Remember:
- Ensure that the themes and sectors you invest in align with your personal risk tolerance and hobbies.
- Use screening tools and financial websites to narrow down the possible investments you want to make quickly.
- You should carefully examine any potential investments’ finances, competition, and future possibilities.
- Consider what institutional investors have to say to get an analytical approach to the market.