It can be both thrilling and daunting for novices to embark on the thrilling journey of investing in stocks. Because of the possibility of huge economic rewards, it’s essential to start the research process using a savvy and strategic view.
We’ve listed five important steps to conduct deep research on stocks and ensuring that you make the right decisions. Additionally, we have an definition of financial terms that explains complex concepts into easy to understand explanations that can you learn more easily.
If you can master the basics in researching stocks and understanding the fundamental concepts in a local context it will help you develop confidence to navigate the ever-changing world of stocks and put yourself on the right path to achieving your goals in investing.
Know the basic principles of research on stocks.
Learn about the key terms within the financial glossary before you begin research into stocks.
Stock
Stock is part of the company’s ownership. The ownership of stock is an owner of an ownership stake in the company’s assets and earnings.
Trading capitalisation
The trading capitalisation is the total in value a company’s stocks that are outstanding. It is calculated by dividing the stock price by the number of shares outstanding.
Dividend
The term “dividend” refers to a payment that is paid out to shareholders using the company’s profits. They are generally paid on a regular basis and the amount could fluctuate based on how the company is performing.
Price-to-earnings ratio (P/E Ratio)
Price Earning Ratio is a measure of value that compares a firm’s present share price against the earnings per share (EPS). Investors may use it to determine if the stock is valued too high or low.
Volatility
This is the amount the price of a stock changes over time. Stocks with low volatility are stable however, highly volatile stocks can change their prices regularly.
Set out your investment goals
Before you begin the research process on stocks be sure to define your investment objectives. Take into consideration your timeframe and risk tolerance so that you can align your investment strategy to your financial goals.
If, for instance, you’re a cautious investor searching to find a reliable revenue stream, find reliable companies that pay dividends for instance, Singapore Telecommunications Limited (Singtel). Presently the dividend is 4%. This yield is what makes Singtel an attractive option for investors who are focused on income.
Conduct a basic analysis
Analyzing a company’s fundamentals entails the evaluation of its financial condition, and outlook in the near future. In a fundamental analysis it is vital to be aware of the following factors:
Growth in earnings and sales
Seek out companies which have consistently boosted the amount of money they earn and sales. Businesses in Singapore’s tech industry such as Singapore Technologies Engineering Ltd (ST Engineering) have proven to show steady growth, which could be a sign of a lucrative investment opportunity.
Balance sheet
To evaluate a business’s financial stability, examine the company’s assets, liabilities and equity. Solid financial standing allows businesses such as DBS Group Holdings Ltd (DBS) to weather economic recessions and keep their profits.
Leadership and management
Check out the management team as well as their past experiences in operating the business. A well-trained and experienced management team can be the key to the success of a business.
Competitive landscape and industry
Analyze the competition environment for the company and the field that it is in. Companies operating in booming industries like the healthcare industry, could provide tremendous growth opportunities, with players such as Singapore Medical Group Ltd (SMG).
Technical and market sentiment analysis
The process of analyzing technical analysis involves looking at historical market data, including volume and price, to identify patterns which are able to predict future price fluctuations. Understanding the basic technical indicators could provide useful data, when it’s not important for investors who invest in the long run.
It is also crucial to be aware of the market’s mood and the news. The stock price of a company could rise due to positive announcements, like collaborations or the launch of new products. However negative news or economic situations can lead to a short drop.
Spread your portfolio out
One important risk-management strategy is diversification. Diversify your portfolio across various areas and industries instead of investing your entire money in one single stock. Doing this can lessen the impact that one stock’s poor performance can have on your portfolio in general.
Conclusion
A key element of successful investing is the research into stocks. Beginning investors can be confidently entering the stock market following these steps, absorbing how to read the financial terminology and studying cases research. To have a complete and profitable investing experience, be sure to define your investment goals in a precise manner and conduct a thorough fundamental analysis, and take consideration of technical indicators as well as diversify your investment portfolio. Be sure to conduct proper due diligence, and ask for expert assistance before making financial choices.
