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How To Pick Stocks For Long Term

How To Pick Stocks For Long Term

Planning for higher education, marriage, or a foreign trip, if you also have long-term investment goals, you can take the assistance of the stock market. The most important thing that you should know before starting your journey is how to pick stocks for the long term. This makes sure that you can earn money in the share market.

But here is the biggest challenge: How to start stock market investment?

If you choose the best stocks for the long term in accordance with your goals, the chances of you making a good profit also increase.

Now, let us have a look at what things one should keep in mind while picking stocks for long term investment in India and to make the share market profitable.

How To Pick Stocks For Long Term Investment India?

how to pick stocks for long term

In India, a good chunk of people invests in the share market for the long term as it is more secure.

However, the share market is not a flat line and the uncertainties keep flowing now and then. But if you follow the right tips for share market investment and principles, there are higher chances that you will be able to dodge these problems smoothly.

Let us now look at some points that will aid your process of stock selection for your long term goals.

Consider The Economic And Political Factors

Keep an eye on the economical and political conditions

There is no doubt that proper research is the essential thing that one should keep in mind. Now, even when you buy a mobile phone, you will look at the different features, price, the sync with new technology and much more.

A similar kind of research is also required when you pick stocks for the long term. Again, the study should be based on various factors, including the company’s financial conditions, objectives, and goals.

Now when there was a recession in India, the IT sector was majorly affected by it. In March 2020 as well, when the pandemic struck, the automobile, real-estate sectors were affected. At the same time, the pharma sector that was having a consistent run over the years showed a significant spike in prices.

Therefore, whenever you are picking stocks for long term investment, you need to keep certain factors in mind. For example, now more and more companies are moving towards renewable sources of energy. This can be an indication that over the years, the stocks falling into this category might show great demand and thus give you potential returns.

So, keep an eye on the regular headlines and the market’s socio, economic, and political conditions. This works as your economic indicators, help you pick the right stock, and enhances your knowledge.

Focus On Fundamentals

Now, when you select stocks for intraday trading, it is crucial to keep an eye on the technicals of the company. Technical analysis usually includes looking at the market trends and using indicators.

But when you invest for the long term in the share market, only the technical analysis is not sufficient. Instead, you need to understand the fundamentals of the company. There are certain things that require attention when you are observing the fundamentals of the company, including understanding the background of the company correctly, knowing its objectives, and seeing whether or not they align with your financial goals.

The other things that you should be observant of while doing the fundamental analysis of stocks are given as follows.

Examine the Dividend Policy

Whenever a company makes some significant profits, they give some share of it to its shareholders. This is called dividends.

It is essential when you are picking the stocks of a particular company for long term investment that you have a look at their dividend policy.

If a company has subsequently increased the dividends over the years, it is a sign that they are making good profits. It is therefore quite possible that the company will give better returns in the future as well.

Look At The P/E Ratio

Price per earings or P/E ratio plays an essential role in the selection of stocks for your long term investments. Now the P/E ratio tells exactly what amount are the investors willing to pay for the earnings.

So, what does it mean? If the P/E ratio of a company is higher, that means that the demand for that particular stock is high in the market. While, in some cases, this is an excellent condition for long term investors, it can sometimes indicate that the stock is overly priced. The overpriced stocks do not tend to show much upward movement after a certain period.

But what about companies with a lower P/E ratio? It indicates that the stock is not receiving much attention. It also shows that the price of the stock has significantly moved below its actual value as well.

Now, in a way to choose the right P/E ratio and company, it is vital that you compare the P/E to the sectoral P/E or the overall market. For example, you want to purchase the shares of company A from the IT sector. The P/E ratio of the company, let’s suppose, is 12, and the IT sector P/E ratio is 14.

This means that the company is good and has a possibility of higher valuation in the market. Observe the P/E and then invest in that stock accordingly.

Company Background And Objectives

One of the most crucial and foremost things that a person should observe is the company’s background and history. It is essential for you to understand how the company has been performing and what are the future objectives.

Keep in mind that the company should have growing objectives in the future, and it is only then that you can invest in the long term.

Now the blue-chip stocks are considered to be very good for long term investments. This is due to the fact that they have stable growth and ever-growing objectives.

You should also identify your financial goals, and it is only after that you will be able to find out whether they are in sync with the company’s objectives.

Whenever you are investing in a company for the long term, think of the owner of the company. Imagine the things that you would want to do, and then define the objectives. It will help you select the right stocks.

Debt Ratio

Now there is another thing in the fundamental analysis of stock: the presence of debt ratio.

The debt ratios give an idea of the total number of assets or things that the company has bought with debt.

Understanding the debt ratio also prevents you from investing in companies that have lower prices but a false valuation.

The more the debt ratio, indicates that the company can be a threat to long-term investments.

Avoid Hot Tips

Avoid hot tips

When you are an intraday trader, it is crucial for you to observe every news and every second of the market.  Although important news announcements and changes in the company also affect the long term investments, if it is just a rumour, don’t panic and sell it off.

Before you pick stocks for long term, it is vital that you do your own analysis and then believes the tips. Please do not invest in a stock because somebody said or got profit from it.

Just believe the factual data rather than some rumour. Now back in June 2021, Adani stocks saw a very steep downfall in prices because of an ongoing rumour. Although it turned out to be fake afterwards, it undoubtedly caused a lot of capital damage to a lot of investors.

Verify whatever you read or hear, and if the fundamentals of the company are strong, you have to keep calm and wait for your returns.

Choose A Strategy

Everybody has a different way of living life or tackling problems. In the same way, a lot of different strategies are available to long term investors as well.

If you are looking to master the art of stock market investment, then you should pick an appropriate strategy and then stick to it.

You cannot make significant profits if you keep switching strategies. Therefore, it would help if you kept a close eye on the market time and when you need to enter.

In long-term investments, you can set predefined goals and then trade according.

Stay Away From Penny Stocks

Stay away from penny stocks

A lot of investors usually get attracted to penny stocks because of the low prices and good volatility. However, while penny stocks can be a good option for short term financial goals, they are not the same for long term investments.

The penny stocks can be a game-changer today and a total loss tomorrow. The lack of regulation and also volatility can make it worse for delivery traders.

Therefore, it is vital that you don’t befriend the craze of penny stocks and pick the ones that have potential in the future.

These are some of the things that one should keep in mind while you are picking stocks for long term investment.

Conclusion

If you know how to pick stocks for long term, it can lead you to significant profits. You can easily invest in the stock market in the long term and work towards your financial goals. You need to be patient, disciplined and execute your research correctly to pick the right stocks for the greater possibility of generating profits.

Stock market investments work on the compounding factor and generate significant returns over the years.

If you are also looking to invest in the stock market, open your demat account today!

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