Time-Tested Stock Picking Tips

Written by admin on March 25th, 2012

One muffled drum can spoil the symphony of the entire orchestra. Similarly one share that goes bad on a continual basis can shake your confidence on the merits of your portfolio, during this unpredictable market volatility. But there are some recession-proof cash-cows. Only you need to develop the art of timing the market to its perfection.
This recessionary trend has proved many market experts wrong. Some of the stock-picking tips that will perhaps never let you down are:

1. Diversify intelligently, giving due regard to the upcoming segments of the industry. Presently, the energy segment is worth watching. A hot industry can turn cold within a short period. The fierce challenge to your portfolio comes from the technological advances dominated by computerized trading. The suggested limit of investment per industry or geographic area is 20%.


Share business has turned out to be a guru-dominated industry. There are some experts and there are many who consider themselves to be experts. In either case, remember that you are investing your money. Gurus will not indemnify you for the losses. If they make ten predictions, one or two will turn to be right in any case. This fact will be highlighted in the next articles by such Gurus, and failures will be swept under the carpet. Always take your decision.

3. Instead of thinking too much about the predictions, stick to the fundamentals.

4. Penny stocks are often highly projected by the interested parties. Shares changing hands less than $ 5 per share are termed as “penny stocks.” Think ten times before investing in a penny share, whatever is the merit that you see in the share. The chances making high profits are as good as winning prize in a lottery.

5. Follow the masters. They are masters because they are wise. They have a big establishment, and they have access to lots of information, which an ordinary investor can not think of. The chances of their choices going wrong are remote.

6. Profitability is the word that excites an investor. Think deeply why profit-stories are highly advertised. Are you being misled? Profit making alone is not the criteria to judge the merit of the company. Do such companies borrow heavily? Rely on those companies which finance growth from profits.

7. Ask for details, than what is revealed by the company in the financial statements. You need to develop some expertise to read in between the lines about the declared position and the actual position as for the cash flow. You need to know how much cash is flowing in, not going out.

8. Borrowing money from financial institutions and through equity is a progressive sign, but an investor needs to see for what purpose the company is borrowing. If the profits are substantially increased after paying the interest on borrowing, it makes sense to borrow. As a matter of principle, the chances of high-debt firms landing in trouble are real. The usual debt servicing charges, rise in interest rates, will cut into earnings and the company must have the capacity to withstand such shocks and yet maintain the profit level.

9. Growing company means rising share prices. Rising prices means the investors pay more attention and go on the buying spree. The share prices reach unsuitable levels. Be wary of the timing of your entry in the market. Such shares show lots of volatility. And you need to be there at the right time. If your timing is wrong, even the best performing company will not be able to help you.

The above are the broad stock picking tips. But, there is no final answer, whether you should invest in a particular share or not at a given time. All investment related questions have multiple choice answers and you have many options. Continue to learn and refine your investment methodology.

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