Believe me or not, picking stocks from like dozens of them lying is the most difficult task. Isn’t it?
Well, picking stocks can be simple when you know what you’re doing exactly. Let me tell you that, picking stocks for investing and holding them for long term benefits is what you’re looking for, then read till the end.
All the day traders, positional traders, please read this article till the end if you are only planning to invest and hold the stocks for a long term basis.
Ways To Pick A Stock For Investing
Picking a stock for investing can be done based on the two types of Analysis, i.e,
- Fundamental Analysis (Long Term Investment - up to 2 years or more)
- Technical Analysis (Short Term Investment - Up to 1 year or less)
These are two terms in Stock Market and obviously, there are many but we will keep short to these both.
When they say “Stock Market is not gambling, they mean, it is a game of analysis”. In Stock Market, you analyze the company and then be a part of that company by holding your shares in that company.
What Is Fundamental Analysis?
Yes, what exactly is it man, I don’t really get it. Well, it’s very simple.
In simple words, we all know analyzing the fundamentals of the company simply means the fundamental analysis of a particular company or say it’s stock. You can also decide if the price of the stock is fair, overvalued, or undervalued using Fundamental Analysis.
In reality, it is actually a prediction to determine the intrinsic value of the company or its stock by going through various financial factors and related economics. The factors are given as follows,
Balance Sheet
It is a sheet that contains all the data of the company’s financials, which is helpful for an investor to determine the value of the company.
Consumer Behavior
The investment intentions of the people or how people are reacting towards a particular company or their behavior towards a particular stock of a company.
For example, Burger King recently got into IPO and even though it has weak fundamentals, it hit the upper circuit with over 1 crore buyers waiting on the first day of listing.
WHY?
Because Burger King has a great brand value and every people investing knows what does Burger King does, sell burgers and they are very likely to invest. This explains consumer behavior.
Industry Analysis
Investing in stocks doesn’t mean you have to look at just the companies fundamentals, but you should also be aware of the Industry the company is having the business in.
In the Industry analysis, you check if the company is the best in the industry, and is facing less competition and ofcourse the prediction of future supply & demand in the industry the company is in.
What Is Technical Analysis?
Technical analysis is just the opposite of whatever you read above. By opposite I mean, the technical analysis doesn’t require you to go through the companies balance sheets, behavior, or find the stocks real value or fair value.
Technical Analysis depends solely on the historical trend of the particular stock. The trend of stock and how it behaved in the history, keeping in mind all of these then such stocks are analyzed. This methods of analysis is called Technical Analysis.
For example,
A stock following the same previous trend and give breakout similarly as seen before is an example. Usually, stocks tends to make the same pattern or movement over time and this patterns and movements are predicted in technical analysis.
Which is better? Technical vs Fundamental Analysis?
If you ask me to pick one, then I will definitely choose Fundamental Analysis because being a value investor, I have to pick stocks that will do very well in the future and shows a very strong fundamental so I have all my confidence and be like,
I am confident because since it have a good fundamentals and price is fair or even undervalued then it will grow and definitely do more than expected in the future.
However, I wanted to make a conclusion here that, if you are a long term investor and willing to stayed invested for more than 2 years to grow your money with or around 15-20% or even more per annum then you should opt for Fundamental Analysis.
On the other hand, if you’re looking for some short term gains from your money lying idle then you can predict the historical trend of good stocks to put in your money for a short term period and gain some quick money.
If you’re looking for some Strong Fundamental Stocks or technically analyzed stocks, use this screener to filter all stocks and find such gems to invest in, the link is given below:
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Conclusion
I hope you got an idea now about how picking of stocks works. Obviously you can’t just go and pick any of the stock. Sometimes your luck might be helping you but not all the time, you can loose lot of money if you pick a wrong stock to hold. Overall, there is a potential risk in investing directly in equities.
We all know, with great risks comes great responsibilities, so you need to manage the risk and trade carefully to avoid any losses.
Lastly, if you want to hold stocks for more than 5 years, here are my favorite picks of all time and completely according to my strategy and opinion.
(Invest if you want to, I’m already holding all of them)
My Favorite Stocks:
Reliance (NSE:RELIANCE)
Motherson Sumi (NSE:MOTHERSUMI)
PC Jewellers (NSE:PCJEWELLERS)
EIH Ltd. (NSE:EIHOTEL)
BLS International Services (NSE:BLS)
Not Recommended, Risky!
Reliance Infrastructure (NSE:RELINFRA)
Reliance Communication (NSE:RCOMM)
Adani Power (NSE:ADANIPOWER)