How do I choose best stocks for long term investment?
1) Know what you'll be after owning a share
When you buy a share, you own a part of that company relative to the value of your share. Let's say a company has 100 shares and the price of one share is 10 rupees. After multiplying the number of shares with the price of each share, the current value of the company comes to 1000 rupees. Since you hold 1 share of 10 rupees, you become 1% owner of that company. If the company does good business, and increases its current values to 1100, then the value of one share will rise to 11 rupees because it still has 100 shares only. As the share price is now increased by 1 rupee, your investment value also increases by 1 rupees. However, your ownership of that company will still be 1%. So whenever you're buying a share, think that you are buying a part of that company, or a share in the business.
2) Focus on the fundamentals of the company
Fundamentals are what that makes buying a share priced at 1 rupee a bad buy, and a share priced at 50,000 a good buy. There are two factors to check them. First, the company should not be in a debt. Second, the company must not be in losses. It's important that the company is making a good profit year after year. There has to be a consistent growth in its sales and profit. You can identify this by reading the financial statements of the company for the last 5 years. In case you don't know how to read financial statements, take stock market courses in Pune.
3) Understand the company's business
Before investing, understanding the company's business model is necessary. Know what products or services they are offering. It is possible that their products or services must be in great demand at present. But will the demand be the same in the future? The business model of the company has to be futuristic. This means their products must continue to sell, and they should make profits regularly in the future. If the company has more products, in that case, even if the demand for one of its products is reduced, other products must cover up the losses. Take the example of Godrej typewriter.
4) Valuation of shares
Every commodity has a value. Whether it is good or bad depends on how much you have paid for it. A car that is purchased in 3 lakhs is a good buy, But when the same car is purchased in 5 lakhs, then it is a bad buy because you have paid way too high. To find the value of share, let's compare the net profit of Axis Bank and State Bank of India. Say Axis Bank is earning 1000 rupees in a year and SBI 500 rupees. Then check how much you have to pay to buy the total number of shares each bank holds. This will give you their market cap. Now assume the market cap of both the banks is 800 rupees. In that situation, it will be wiser to buy stocks of Axis Bank, because in 800 rupees, you'll get a company that is earning 1000 rupees.
5) Keep a track of the company's progress
There is no room for complacency in stock investing. Even if you've selected the best stocks, it's necessary to keep the track of the company's progress. You can subscribe to company's newsletter and know what future plans they are coming up with, or the projects in the pipeline. Many companies even publish quarterly, half-yearly, and annual reports on earnings. If the company is doing well, there is no need to worry. In case the business in shaky, then it's better to change your portfolio of stocks.
The Indian stock market provides myriads of options for growing your money. The only thing needed to pick the best one for long-term investment is to research and do your homework carefully. If you're determined to invest in the stock market and want to see your money grow, then take best Stock Market Classes in Pune so that you can be efficient and take wiser decisions.