How to Pick a Stock: Step by Step Guide for New Investors

There is only one side to the stock market and it is not the bull side or the bear side, but the right side.

If you are making debut in stock market, you are required to follow these steps:

Step 1: Get a PAN card if you don’t have one as it is most required document, if you are entering the finance world.

Step 2: the next step is to choose the broker who will buy and sell securities on your behalf.

Step 3: you are required to open Demat account and trading account with your broker, so that you can invest in stock market.

Step 4: you are ready to trade.

After following these steps, you are ready to start your investment journey, how can you make your debut with good returns? Which stocks will generate high returns?

These questions be answered by following some simple tips:

1.) Buy stocks with high return on equity

Humans generally get attracted to free things or things which is low priced. But when we talk about stock market it is not just about the price. There are companies which are low priced and have less return, it gets difficult to earn for investor. Warren buffet calls this approach of investing as cigar butt approach to investing where you get one puff of cigar left in it for free you use it and throw it and move in search of another cigar. Stocks are not cigar; you finish the puff and throw it. The stocks you pick must have high return on equity so that as an investor you can earn. The high return is not 3 days 2-night holiday trip, you need to give time for the stock to grow and give higher returns. Buffet says if you are in lousy business, it will give you lousy returns and if you are in wonderful business for long time although you pay more you will definitely get wonderful returns.

2.) Buy businesses with ‘MOAT’

There are lakhs of company listed with stock exchanges. You cannot understand all the companies. You must invest in those company which you know, whose business are easy to acknowledge. Investors should choose those stocks which has long term competitive advantage that allows company to earn oversized profits over time. You must look at that company 20 years from, where will the company be after 20,30, or 50 years from now.

3.) Buy simple stocks and project the business will be in 10 years

Investors should invest in those business which is simple to understand, honest management and has great economics. Before investing in stocks investor is able to see where the business will be in 10 years. Don’t buy stocks of business you cannot understand or you can’t see where it will be in 10 years. How can you analyse how will the company be performing in upcoming years? With the help of stock screener, you can study different financial ratios over the time and compare the annual, monthly and quarterly reports of the company. Ticker by finology, stock screener will make it easy to analyse as you can find similar characteristics company in one bundle and peer comparison of the same.

Warren buffet says before investing in apartment farm we check its value in next 5 years then why we decide whether the company is doing well or not by its prices in the next morning.

4.) Stock is a piece of business and you must be able to value the stock

Consider the stock as a piece of business, investor should understand that they are not buying stock but part ownership in business and if you are going to be the owner of business you must understand your business, you must know the intrinsic value of the business the same can be found out by carrying fundamental analysis of that company.

Today technology is growing speed no one would have thought of car running on electricity but it is happening. We know the tesla company and its innovation; we can easily understand the company and its value. Similarly, Paytm company, who knew that you can digitalise your money but it got possible. You can understand its business and know where it will be in 10 years.

5.) Don’t lose money

We don’t know how much return am I going to earn the only thing I know that I don’t want to lose my hard-earned money.

These simple stock picking strategies will win you best debut in stock market.

At last, just remember what Warren buffet says “I never attempt to make money in stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years”.