How To Choose Stocks For Long Term Investments
Long term investment requires a lot of planning and research. For investing in the stocks, you need to make some strategies to get the best return of the stock.
In long term investment, you don’t need a day-to-day management.
Investment means the process of investing money for profit. Investment can be made in bonds, real estate, stocks, fixed deposits, insurance, etc. Investments are generally of two types: long term investment and short-term investment.
Any asset hold for less than one year is called short term investment, generally, investors hold an investment for no more than a few months whereas long term investment is where the asset is held for more than one year. The long-term investment is considered to be more secure as it consists of less risk, and gives money more time to grow.
Long term investment requires a lot of planning and research. Long term investment decision depends on various factors like the future goal, risk-taking ability, capital appreciation, etc.
The stocks you invest in for short term investment are not the same for your long-term investment. The stock suitable for short term investment doesn't need to be also suitable for long term investment. How to choose stocks for long term investment?
If you are planning to invest in the stock market, the first and foremost thing you require is to open a Demat account and also an open trading account, no matter the type of investment you are doing. Once the account is opened, you can start investing in the stock market.
To invest in the stock, you need to make some strategies to get the best return of the stock.
Start with Understand the company
Invest in those companies which are understandable, don’t just invest in a chemical company just because analysts sitting in the panel are saying if you don’t understand that industry and company just ignore it and focus on valuing the business of your area of competence.
History of the company
It means you should know the past of the company you are investing in, its parent company, its subsidiary, how much return they gave in past, any government interference, etc
Sizing up the present situation and prospects
The one question one should ask before investing in any institution or company is Whether that company will last for 10 years? It means one should analyze the present and prospects of the company, whether the company can fulfil its operational needs, whether the company has sufficient resources to carry its production for the future, the technological and research development of the company, the personnel of the company, the internal management of the company, in nutshell everything about the company that an individual should know before giving your money for the company to use it for coming years.
The next strategy is studying the business and not the price
What makes warren buffet different from others is his investment strategy. He focuses on the business than the stock prices. People focus on the falling prices of the stock than the performance of the business. Whenever long-term investment planning is done first see the business performance instead of its share prices.
Buy below intrinsic value
The stock market is not everyone’s cup of tea, this is so if a normal person without any analysis and research would deny investing in a company with falling stock price, but if an individual has analysed and researched the present and prospects of the company even if its prices are low as he knows the worth of the company and the prices would rise in future. So, if you buy things far below what they worth, you definitely won’t lose money.
Make your analysis
Many times, we invest in a company that is advised by others as a tip for long term investment, before investing performs your analysis on the stock research report.
Study the business risk
Before investing any amount in the company, study whether the company has the capability of fulfilling the future needs and wants, whether the R&D department can forecast the future need and wants of customers and they have proper resources and planning to consider the customer's requirements. If any company seems to fail that factor then the business is at risk. The best example is kodak camera, which was king of the camera in its time but it failed to forecast the future and has to foregone its position in the market.
Returns and reinvestment
If a business is performing well, it will generate returns and cash flows, one should check whether the returns and cash flows generated are properly being utilised and generate the same for future years, the market is volatile so it is not possible to expect constant returns for years, but its reinvestment strategy determines how well the company will be performing in future.
How can patience be a strategy for long term investment? As we know that stock market is volatile, so the prices of shares rise and fall, investors should not panic about the decrease in the price of the shares and sell the shares one should remember that it is a long term investment, so prices would fluctuate, an investor should wait till maturity unless the factors don’t force to sell the shares.
Evaluate and estimate the ratios
Individual before investing in the company should evaluate different ratios like the dividend pay-out ratio that tells how much the company can pay a dividend of its earning, the earning per share, and several other ratios. The valuation of different ratios can be seen with the help of a stock screener. A stock screener can assist one with a comparison of performance over years.
Stay with one strategy
Every individual has their investment strategy, individual should select one strategy and stick to it, don’t just use the strategy just because the other person generated high returns, only use that which you can perceive.
As the future is unpredictable, no one knows when they require money. Planning should be made in such a way that liquid funds are kept separately so when money is required, it is available.
Investment is an art and not everyone is an artist but you can be one if you prepare your stock research report by following the investment strategy you comprehend.