How to pick up the best stocks?

You can be in a real dilemma to pick up the best stocks for long term investment. Let’s make your approach a bit simple.

The first and foremost thing you need to consider in a stock market investment is the type of business the company is involved it. Mechanical and production industry dominated in the 80’s and early 90’s. But would you invest in these industries today. Probably, not as much as you would have done 20 years back. Telecom and IT was probably booming and the right choice in early 2000. Today, the market is changing more towards social networking and other media companies. So, sector selection is a crucial factor in your stock market exposure. You might even choose to go with the evergreen sector viz. pharmaceuticals, FMCG and healthcare industries.

The second aspect of your selection is to choose the most reputed company in that industry. Here you can almost guarantee some sure-shot gains. But you need to be aware that such companies are already available at higher valuations. Evaluate if they can provide returns at the same rate for the next 10 years. If not then rule them out. Go for emerging businesses with great promise, robust business model and great leadership. These might really prove beneficial in the long run and provide exponential returns on investment. Remember not to go with companies because someone said that it has the potential. Evaluate the potential yourself by proper research because after all it is your own money.

Never buy the stocks in bulk at one time. Always make systematic investments at regular time intervals. When the market is down don’t panic, just go ahead and buy more. This will bring down your average costs and your returns will be significantly higher.

Buy stocks that provide dividends. Such stocks are more likely to be doing well. But again, this may not be necessarily true. So, your research on other aspects like corporate governance, Earnings per share, P/E ratio and Book value still stands huge significance.

If you really need to buy the best stocks thorough research is a must. Just remember the basic rule of stock market investing: “You don’t need to buy a great company at a high price, what you really need to do is to buy an emerging company at a low and fair price”.

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