How to choose company shares in order to make a profitable investment for the future
Securities have always been one of the most popular and promising investment options.
This is not surprising, because the price of some shares has increased tenfold in just a few years; in addition, dividends paid act as additional income in this case.
But it’s not so simple here; there are securities for which the price not only rises, but also falls. As a result, instead of profit, you can lose your invested money.
Therefore, the question “How to choose company shares” is especially relevant if you decide to invest your capital in this way.
Book value – shows how many assets in monetary terms are allocated to one share of the company.
This indicator most objectively shows the price of one share. It is calculated by simply dividing the net assets by the number of shares outstanding:
For example, there is a company whose assets after paying off all debts are valued at $1,000,000, while at the same time there are 50,000 shares circulating on the stock exchange, which means the Book Value is = $1,000,000/50,000 = $20.
The lower the market price relative to book value, the more attractive a company's shares are to purchase. The data for the calculations is taken from the company's financial statements.
Current price – many investors, when buying a security, focus solely on the trend direction, thinking that if the price is rising, it's good and they should buy.
When buying, it is advisable to evaluate the entire market situation, the prospects for the continuation of the trend, the likelihood of a correction, and the state of the market.
It often happens that the price rises sharply after good news, and then falls by 20-30% of the distance traveled.
Furthermore, the price of a single share plays a significant role: the lower it is, the greater the chance of strong growth. For example, if a security is already priced at $10,000 per share, it might appreciate by 15%, but not by 15 times.
Prospects for the company and the industry as a whole – that is, to assess how profitable the company's activities are and how promising its activities are.
For example, I'd be wary of buying shares in a company that prints books and other paper products right now. Interest in this type of product is declining every year, and even if the company is profitable now, it's unlikely to be profitable in five years.
A company's image also plays a significant role; people are eager to buy well-known brands, meaning that the more popular a company is, the greater the likelihood that its issued securities will grow.
Dividends – for many, this is the main indicator when choosing, but I would pay attention to it last.
Yes, it’s nice to receive 3-5% per annum, but if you make the wrong choice and the stock you bought falls in price by 10%, the dividends you receive won’t compensate for the losses.
Therefore, dividends can only be an additional argument for purchase, but not the main one.
These are the principles professional investors use when building their portfolios. If you'd like more information on "How to Choose Stocks," you'll find it in books about the stock market - https://time-forex.com/knigi
Find out also - How to buy company shares online
