How to Find Good Stocks to Trade

How to Find Good Stocks to Trade

Whether you are looking into investing into stocks or mutual funds, you will need to focus on minimising your transaction costs. By rule of thumb, the transaction cost should not exceed 2% of your total purchase and this is what smart investors do to protect their assets and ensure profitable returns. Transaction costs are usually common in brokerages, but there are brokerages and markets which do not charge you a transaction fee or a commission.

For example, if you are investing $350 in the market, 2% of the purchase is $7 and that is the ideal transaction fee for this situation. Especially for small-time investors and new brokers, experts have always recommended to invest in businesses one understands and businesses which interests an individual.

In terms of investing a good stock, the question is usually raised –

is it better to invest in one high-priced stock or multiple lower-priced stocks?

There are many odd cases in the market, where a $400 stock is cheap and a $25 stock is expensive. This happens due to factors such as the growth of the business, the net worth of the company you are investing in, the strength of the brand, the performance of the company, reliable management and so on and so forth. There is a method known as the “stock advisor method” which helps investors with financial growth and success.

There is no fixed formula for stock market investment. The stock market is merely an indicator of the prices and there are many factors that cause a shift change in the prices. Investors commonly take a sceptic approach towards a company who have released their respective IPOs or selling shares to specific shareholders. Ultimately, the investor only desires one thing from an investment which is a profitable return. Smart investment means investors will have to look into the company details, even if they do not make managerial decisions for them. A shareholder of a company will not be given the right to work for the company and inform them of how to run operations. But what a shareholder should do is perform a financial analysis of the companies they are investing in. Financial analysis includes looking at annual balance sheets, checking their annual profitability margins and cash flow structures. There are two more factors an investor should take into account, which is the return on capital employed (ROCE) and return on equity (ROE). The return on capital employed measures the proportion of adjusted earnings to the amount of capital and debt required for a business to function.  For a company to remain in business over the long term, its return on capital employed should be higher than its cost of capital or alternatively, continuing operations gradually reduce the earnings available to shareholders. It is commonly used to compare the efficiency of capital usage of businesses within the same industry. Return on equity is the profit after tax divided by the shareholder’s investment. Therefore, stock market investment is more than just throwing in some amount of cash in the market with a 100% guarantee of returns. A full evaluation must be done in order to secure your returns and foresee a successful investment.

It is always good to check for undervalued stocks to buy

check also the article related to undervalued stocks from my previous post

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