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 per share of the company.
This indicator most objectively shows how much 1 share costs. It is found by simply dividing the amount of net assets by the number of shares outstanding:
For example, there is a company whose property after paying off all debts is estimated 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 is from the book value, the more attractive the company's shares are for purchase. Data for calculations are taken from the financial statements of the company.
Current price - many investors, when purchasing a security, are guided only by the direction of the trend. Thinking that if the price rises, it’s good and you need to 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 drops by 20-30% of the distance traveled.
In addition, the cost of one share itself plays an important role; the lower it is, the greater the chance for strong growth. For example, if a security already costs $10,000 per share, then it may rise in price by 15%, but not 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 is what it does.
For example, I would now be afraid to buy shares of a company that prints books and other products on paper. Every year, interest in this type of product decreases, and even if the company is now operating at a profit, it is unlikely that it will be profitable in five years.
The company’s image also plays an important role; people willingly buy well-promoted brands, which means that the more popular the company, the greater the likelihood of growth in the securities issued to it.
Dividends - for many, this indicator is the main one 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%, then the received dividends will not compensate for the losses.
Therefore, dividends can only be an additional argument for the purchase, but not as a main one.
These are the principles that professional investors are guided by when forming their portfolios. If you want to get additional information on the question “How to choose company shares,” you will find it in books about the stock market - https://time-forex.com/knigi
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