The Golden Rules for Choosing the Best Stock. With the popularity of exchange traded funds (ETFs), buying individual stocks seems to be falling out of favor. But for rugged, self-directed investors, it’s still a preferred route to investment success. But if you’re new to investing in individual stocks, what are the rules for choosing the best stock? Here are a few that will help.
1. Invest in Companies that Dominate their Industries
Have you noticed that the same companies keep coming up in different portfolios? It doesn’t matter if we’re talking about index funds, actively managed mutual funds, or individual portfolios designed by investment managers. Names like Amazon, Apple, McDonald’s, and Facebook come up again and again. There’s a reason why that happens, and it’s not just because investment managers all gather information from the same sources. It’s because certain companies dominate their respective industries. That makes an investor’s job a lot easier. Click to get an Online Trading Account Not only do such companies have a strong track record of industry domination, but they have an uncanny knack of coming out with new products and services that are well received by consumers. This isn’t an accident. Such companies have the capital, know-how, and energy to turn out winning products and services. There’s never a guarantee they’ll continue doing this going forward. But the fact that they have a track record of doing it consistently in the past is an excellent indication of continued success.
2. Invest in Businesses You Understand
There are literally thousands of different companies you can buy stock in. Some of them are well-known companies, selling everyday products and services. Those are the companies you should invest in. There’s a close correlation between the success of a product or service, and the performance of the company stock. And when a product is common, it means it’s well understood and accepted by the consuming public. If you understand the company’s products, and particularly if you already use them, you have a solid understanding of how the company works. Another category includes companies engaged in industries where you have above average understanding. It could be because you’re employed in the industry, or have been in the past. Or it might be because you have a particular interest in a certain industry, even if you don’t currently use any products and services it produces. On the other side of the spectrum, stay away from companies you don’t understand. For example, there are a lot of upstart drug companies that may be showing considerable promise. But many of them are selling on promise alone. That is, they’re working on an experimental drug that’s expected to make a major medical advance. But until they actually have a breakthrough, and begin marketing the product, they’re not profitable– they may not even have a cash flow. Click to get an Online Trading Account This is just one example of an industry or company you may not understand. There are plenty of others, particularly those that involve a high degree of research. But there may also be very practical industries that involve complicated business models. If you’re having difficulty grasping exactly what it is they’re doing, or how they make money, those stocks are best avoided.
3. Don’t Overload in Two or Three Sectors
This is virtually a disclaimer on the previous recommendation. Yes, you want to invest in industries that you understand. But at the same time, be sure your portfolio isn’t overloaded with stocks in a very small number of industries. For example, if you work in IT, you may be tempted to overload your portfolio with tech stocks. After all, that’s your business, and what you understand. But any industry, no matter how well you know it, is subject to the ups and downs of the market. Just because technology is flying high today, doesn’t mean it will forever. If you plan to hold say, 10 different stocks, make sure they’re diversified across six or seven different industries. The worst thing you could do is have half or more in a single industry. While it might serve you well when that industry is in an upswing, the backlash can be financially punishing when that sector turns down. Realize that for a host of reasons we cannot predict, a specific industry can go into a bear market, even while the general market is flourishing. It’s all about diversification, and that matters whether you’re in funds or individual stocks.
4. Buy Companies with a Solid Track Record
Go with companies that have a proven track record. Obviously, this will move you out of the realm of new companies. But the “first rule” of making money in the stock market is not to lose any. Any company that’s relatively new and unproven, is more likely to result in a negative outcome. Click to get an Online Trading Account To be an established company, the business should be around for several years–the more the better. Even more important, they should have a steady track record of increasing both revenues and profits on a consistent basis. For example, you might look for a company whose revenues and profits have grown in eight of the last 10 years. A company like that puts time on your side, because it’s showing a steady growth pattern. Other investors see that too, as well as fund managers. Chances are, they’re either already holding that stock, or plan to buy it in the near future. All of that bodes well for the long term prospects of that company.
5. Dividends DO Matter
Dividends represent the return of a portion of a company’s profits to investors. They provide an immediate return on investment, so the investor is not entirely reliant on capital gains. They’re particularly attractive to income investors, and do provide some measure of protection in market downturns. As well, a company that pays dividends to their investors on a consistent basis is a healthy company. They’re able to continue operations, and even expand, while returning some of the profits to their investors. Kiplinger’s puts out an annual list of dividend aristocrats that are well worth considering. Dividend aristocrats are described as “companies in the S&P 500 that have increased their payouts every year for at least 25 consecutive years.” They’re also referred to as “dividend growth stocks,” which might be the optimal combination.
Do your homework before buying stocks. When you decide to try your hand at stock picking, it’s essential to do your homework. Your goal is to find a good value – especially if you plan to hold on to an asset for a while. But before you put full faith in a company, you should do thorough research, reviewing a stock’s fundamentals to monitor its viability and checking if it still has room in your portfolio. This isn’t a simple stock purchase – you are becoming a shareholder of a company, so investors must be willing to do the proper analysis. Here are seven things you should know about a company before investing your hard-earned cash. Choosing to invest in a stock can be a nail-biting decision. But if it checks off a few golden rules, it might be a winner.
Kindly take some time to look into this specific Stock as an example:
Pfizer Inc as of writing valued at $36.75 per share
Fundamental Analysis:
The company was the 1st to announce the Covid-19 vaccine with a 90% accuracy.
Their vaccine appears more accurate.
President Biden indicated that he will vaccinate 100 million people in 100 days of office, remember that Biden was Obama’s deputy during the market crash recovery of 2007-2008, they took office in 2009. He is good with Crisis handling.
If people are vaccinated in America then other countries will start copy pasting the same and that is good for the Pfizer stock. It goes up.
The company has managed to pay dividends for 349 quarters consecutively. They just announced their first quarter 2021 dividend of 39 cents per share to be paid in May 2021.
Founded in 1849
Ranked 64th on the 2020 Fortune 500 list of the largest U.S. corporations by total revenue, at $51.75 Billion
You can trade this shares/stocks in portion using Leverage of 1:5
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Today High Impact Economic News (13/04/2021)
1. USD Consumer Price Index ex Food & Energy (YoY) @ 3.30 PM
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