Saturday, January 16, 2010
INVESTOR EDUCATION = Selecting a Good Scrip for Investment
INVESTOR EDUCATION SERIES
SELECTING A GOOD SCRIP
Selecting a Good scrip for investment is very important - to build your wealth. First time investors and investors with very little knowledge of the stock market usually depend on the advice of some experts, some news media or some broker and put their money in scrips recommended by them.
While there is no harm in seeking and receiving such advice, it is also necessary that the investor himself must make adequate efforts to analyze the reasons and data supporting such advice. There are many factors requiring analysis.But, the following factors may be analyzed more carefully and specially.
I would strongly suggest - please keep a book and record all the following factors under each scrip periodically.Preserve the book. Go on recording all significant facts coming up later under each scrip. It will help you and enable a much better assessment of the scrips. One day, you will be the expert on your portfolio of scrips.
1. For how long is the company in existence? Prefer those in existence for 5 years or more.
2. Do the promoters have a good track record in running their group companies and what is the performance of the group companies?
3. Is the company in a good industry sector, which is on growth track?
4. What is the track record of the company in last 3 years?
5. What is the profitability of the company in the last 4 Quarters? Has it been improving or coming down?
6. What is the current market price and Earnings per share. Latest 2 Qtrs EPS may be taken as guidance and annual EPS may be estimated.
7. What is the price earnings ratio of the company (Market price divided by annual EPS)? If it is less than the industry average, it leaves sufficient scope for appreciation.
8. Analyze at least 10 scrips and then, select the best among them, in terms of price earning capability, for your time horizon. Investors must have at least 1 year minimum time horizon.
Warren Buffet says, some scrips are forever.Long term investors in good growth scrips reap much better profits than investors who frequently shuffle their portfolios. Shuffling is needed only in certain circumstances, which will be dealt with in another Post.
Other Articles in CUSTOMER EDUCATION SERIES can be read at the following URLs :
1. 1. MONEY FASCINATES:
2. MARKET INVESTMENT : ESSENTIAL RULES FOR SUCCESS:
3. SELECTING A GOOD SCRIP FOR INVESTMENT 9CURRENT BLOG POST)
4. INVESTMENT STRATEGIES OF WARREN BUFFET: (5 ARTICLES)
6. WORDS OF WISDOM FROM WARREN BUFFET:
7. DOLLAR (RUPEE) COST AVERAGING :
8. PRICE TO EARNINGS RATIO :
9. GROWTH STOCKS vs VALUE STOCKS :
10. CANSLIM TECHNIQUE :
11. PRICE TO BOOK VALUE RATIO
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