Are you looking for the answer of 1) What things to consider before buying a stock of a company? or, 2) What all to check before buying a stock? Then this is the right article for you .
In this article, I have talked about 9 things that I personally check before buying a stock of any company. So, let’s get started.
Understanding Fundamental Analysis and Technical Analysis
There are two very famous tools used by almost every investor in stock market i.e. fundamental analysis and technical analysis. Fundamental analysis focuses on the fundamental aspect of a stock or company whereas technical analysis look over the technical aspect of the stock.
Under fundamental analysis, an investor calculate the exact valuation of a stock. They try to know is the current price of a stock is higher or lower than the actual valuation or not.
On the other hand, under technical analysis, an investor studies about price trends and patterns as shown in the charts to make buying decision. Technical analysis believes on making buying and selling decision on the basis of past price change and move of the market.
Various technical tools and methods are used for technical analysis.
Why Fundamental Analysis and Technical Analysis is Important For Investing In Stock Market?
To become a successful investor in stock market, you must have the knowledge of fundamental analysis and technical analysis. I personally focuses more on the fundamental analysis rather than technical analysis.
But I would suggest you to focus more on technical analysis if you are a trader. For long term investor, fundamental analysis is must. The reasons of why fundamental analysis and technical analysis is important for investing in stock market are as follow:
- It helps to calculate exact valuation of a stock price
- It help to know the strengths, weaknesses, opportunities and threats of a company
- It helps to know the profitability condition of a company
- It helps to determine the future price movement of a stock
- It ensure the safe investment on the basis of data, trends, methods and calculations
- It helps for long-term investment by predicting the future of a company and stock
- It also helps traders to make profit in short-term investment
Finally, fundamental analysis and technical analysis helps an investor to choose a best stock out of many for a safe and more profitable investment.
9 Things to Consider Before Buying A Stock of Any Company
1. Check You Knowledge
Before buying a stock of any company and start investing, the first thing you should do is to check your knowledge about the stock market. If you thing you have adequate knowledge and intelligence about how stock market works, how profit can be made, hot to be safe from investment loss etc. then only you should start investing.
YouTube is one of the best medium to learn about share market in an easy way.
2. Nature of the Market
You should be able to analyze the current situation and nature of the stock market before buying a stock. Market can either be in bearish situation or bullish situation. If market is in bearish stage where everything is against the market up then you should be more careful while investing your money.
Only few people who are expert in stock market can make profit in bearish market. But in bullish market situation, almost every investor make profit. So, it would be very good to start investing when market is in bullish stage.
3. EPS and PE of the Company
EPS stands for earning per share of a company and PE stands for price to earning ratio. Before buying a stock, you must check the EPS and PE of the company. Because EPS denotes dividend paying capacity of a company.
And, PE helps to know is the price of stock costly or cheaper. You should always buy a high EPS and low PE stock.
4. Past Stock Price Trend of the Company
If you are a trader then it would always be a very good decision to check the previous price trends and patterns of the stock. How stock price moves in different situation can be predicted by studying the past data.
5. Dividend History of the Company
Every year a company provides dividend to it’s investors. Company can distribute it in the form or bonus share or cash. That company which has been providing good dividend to investors every year is considered best for investment.
So, before buying a stock, you should always check at least 5 years dividend history of the company. When company make high profit and there is possibility to distribute high dividend, the stock price moves up.
6. Current Financial Report of the Company
Financial reports help you to have a better understanding of overall financial condition of a company. It helps you to know about assets, liabilities, debt, profitability, liquidity condition etc. of the company. So, you must check the financial reports like quarterly income and statement reports and balance sheets etc.
7. Overall National and International Economical, Political and Environmental Condition
Economical, political and environmental factors have great impact on the stock market. If they are positive, share market react positively, but if they are not in favorable situation then share market reacts negatively.
So before buying a stock, you should always analyze the present economical, political and environmental situation and it’s possible impacts on share market.
8. News About the Company
News have great impact on stock market. If there is any bad news about the company in the market like fraud by employees, damages inside the company etc. then stock price fall down and vice versa. So, before buying a stock, you should be aware of all the news about the company in the market.
9. Volume in the Market
Volume means the total amount of money traded in the stock market in a day. Sometimes, some stock market players artificially rise the market to make new investors fool. So, you should always know that if market has increased but the volume has decreased then this is the signal of temporary market growth only.
If market index has increased along with the increment in volume then we can assume that market can rise even more.
So, this is all about our today’s discussion on the topic ” 9 Things to Consider Before Buying A Stock of Any Company “. I hope these 9 things will help you in your share market investment. At last, I would like to request you to provide your suggestion and feedback in the comment box below. Thank You!
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