Picking the Right Stock

Submitted by Sharemarket News on 14 April, 2011 - 18:15

Learn about picking the right stock.

You trade because you want to profit, and you do this by picking the right stock or taking advantage of a stock moving in the "right" direction. Stock selection requires a lot of research and knowledge about the stock market. It's akin to choosing a great cricket team.

For the beginner trader, the 2000 companies listed on the ASX can be daunting. Research is your friend, and make sure to have a goal so you can develop the strategy to help you reach it.

Here are some tips to select the right stock:

  • During your research, make use of ratios, company announcements, industry indicators, and volume price trends/graphs. You can also subscribe to an analyst report (list or price chart). Analysts generally have portfolios to track their records. Investing forums are a great place to get ideas about what others are buying.
  • You have to start somewhere, but it can't hurt to pick blue chip stocks with competitive advantage like CBA, BHP, and RIO. If you're already an investor, pick well-known companies that you are familiar with. Technical traders can basically start with any stock.
  • Understand how to skew your trading to a positive expectancy. Some traders find an ROE (Return on Equity) filter greater than 25% and debt to equity less than 30% helpful.
  • Work out intrinsic value. Share prices tend to track intrinsic values over long periods of time.
  • Pick a procedure, stick to it and constantly review it. Learn from your mistakes.

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