Tips on how to choose a stock that fits you
If are you looking for investing in a stock, but don't know how to choose the one that is perfect for you, check out this guide!
Investing in stock can be the first you get for a better financial life in the future, or perhaps, even the beginning of your journey towards becoming a rich person.
However, it is very important that you know how to choose a stock that befits not only your philosophy but also your goals.
Many people think that the stock market is kind of a lottery, one of the main main reasons is that many people do not study the stocks they buy, and as a result, their profits or losses are as random as a lottery ticket.
In this article, we will be discussing some things that you need to keep an eye out for, so you will be able to choose a stock that fits you.
We will purposefully avoid talking about some indicators, like PE Ratio and PS Ratio, because we want to focus on the people who perhaps are choosing their first stock, so there are things as important as these indicators right now.
Set up your investment goal.
Not everyone wants the same thing with their money. Younger persons may want to increase their portfolios and look for long-term investments, while older people may want safer options, that gives them dividends for the rest of their life.
This kind of matter falls on another characteristic: your investor profile.
Some people may be more susceptible to high-risk, high reward kind of investments, such as investing in startup stocks, new companies that may increase exponentially their valuation, or break up in the next year.
There are people, however, who prefer to invest in safer options, like banks or big companies like Apple and Disney, whose valuation isn’t likely to explode, but are solid and good dividend yielders.
The other option is the “best of two worlds”, people who prefer owning some of these safer options and use part of their profits investing in more risky adventures. However, even the ratio of safe companies- startup investment differs from person to person, according to their risk.
However, no matter this profile, one tip remains very much relatable
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Investing in what you understand
We are wanting to find the best stock for you and try to avoid the “lottery effect” that buying a stock without knowing it might have. So, in order for this to happen, start with what you already understand.
For example, if you work in a bank, it is more likely that you understand how a bank work, in this case, maybe owning some Bank of America stock may be a good option.
However, if you are an engineer and work on construction sites, you may be more in touch with what makes Caterpillar so valuable.
So, if you want to find a stock that fits, you should begin to look in areas and segments where you have some real experience on it. This way you will enter the stock market knowing something, and have a more understanding of where you are putting your money.
Invest in companies that people are using or are likely to use
This is a very interesting thing that Peter Lynch shows us in a book of his. He says that when he wants to buy a new stock, he usually goes out and takes a look at products and services that people are using or are beginning to use and their popularity is rising.
What many people need to understand is that what makes a company valuable is how many people are using it, so, sometimes getting your eyes off the screen and looking through the world is the best way to choose a stock.
However, these are just some tips to help a first-time stockbroker. The financial reports are important, and if you could spend some time studying and understanding them, it would do wonders for your portfolio.
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