Want to know which stocks to buy? There are multiple strategies you can choose depending upon the time that you are willing to wait for, your risk tolerance, knowledge, and intuition.
Investing in stocks is basically an art. While there are artists who keep on making huge chunks of money every day, even someone who is a beginner can get good returns. There are two things that you need to know though. First, have patience. Second, don’t be greedy. Let’s take a look at the different strategies that you can go with.
Strategy-1: Long Term, Low Risk
Here, if you don’t want to bother yourself too much with information, just invest in a suitable index fund and forget about it. In the long term, most of the economies in the world have shown a positive growth, and you can say the same about their indices. So, if you invest in those, in a couple of years, you won’t just have profits, but the profits would compound to give you a decent return.
If, however, you are knowledgeable, you can form a better strategy. Instead of going for the index funds, just look at the individual stocks that constitute them. Categorize them on the basis of their sector, look at their charts, and check their details. Theoretically, there’s no boundary to how much you can know about a stock. However, the most important things about it would be the following.
Things to Remember When Investing in Stocks
- Check if the stock has stable revenue over the last couple of years.
- Compare the stock with the others in the sector both in terms or returns and revenue.
- Check how the valuation of the stock stands, both in general and in comparison to other stocks in the same sector. This you can find out through PE ratio, and sector PE ratio. The bigger the PE ratio is, the more overvalued the stock or the sector is. Avoid any stock with a PE ratio higher than 100, or a PE ratio much higher than
These are just a few points that you can keep in mind. But if you don’t want to bother yourself too much with these technicalities, just look for a suitable website where you can look at future stock forecast. For example, if you want to know what General Motors is going to be like in 2023, look for GM stock forecast 2023. You can change the year depending upon how long you intend to hold the stocks. Make a balanced portfolio of the stocks that promise the highest returns and forget about them. Just make sure that if you want to play it safe, don’t invest in a stock with small or medium cap.
Strategy-2: Long Term, High Risk
High rewards come along with a high risk. So, if you are willing to take the risk for it, follow all the points in the above strategy, just invest in stocks with a smaller cap. However, if you don’t want to make a complete gamble, invest in the stocks of the companies that are already established. That is companies that have been there for some time and have been relatively consistent both in terms of their revenue and profits. Just invest your money in a couple of such stocks and leave them for a few years. Out of these, if even one fourth of the companies end up rising exponentially, that’d be more than enough to double your investment. That’s why, all you need to do is make the right choice. Just don’t invest in a stock like sundial growers, get your information from a trusted source.
Strategy-3: Short Term, Low Risk
After following the steps mentioned in the first strategy and shortlisting the stocks, try to find out an anomaly. That is a stock, which, despite having good results, has fallen down tremendously, and is trading at relatively low levels. Once you have a list of such stocks, just make sure that to check if it is the result of a recent bad news. If you can’t find any cause except the shaky buyer sentiment, go for the stock. Just wait for it to rise 10 to 20 percent, book profits, and leave. Here you would have to use stop loss. That is, you mark a point beyond which you are not ready to going to book any loss, and if the stock reaches that point, just get out of it. But if you do proper research and invest in a dozen stocks, with a proper source of information, it might help you in booking good profits in the short term.
Strategy-4: Short Term, High Risk
Our suggestion would be to stay away from this option as much as you can. Here, you just do everything that you do in the third strategy, except you don’t wait for stocks to have fallen down tremendously; these might be trading at a high. Secondly, in this option, you go for stocks with low cap, so that there’s more fluctuation. Have very stringent stop losses and monitor the stocks thoroughly, both in terms of news and price. If you are lucky, you might make hefty profits within a couple of days. But there’s also a risk of getting trapped in a negatively spiralling stock, so be careful.
Final Words
The best way to move forward is to employ the first three strategies, and to subscribe more to one than to others depending upon your risk tolerance and the duration that you are ready to hold your stocks for. Lastly, just remember not to put more than 5% of your money in a single stock. Also, make sure that you are putting your savings, and not the money that you need in the near future. Stock market can be ruthless to anyone venturing in. So, be patient, be safe.
Article Submitted By Community Writer
