Selecting Stocks – Aim for the Best

Selecting stock Copy

“Knowing yourself is the beginning of all wisdom”, said Aristotle. As a trader, it is very important that you identify and strengthen your trading style. There are thousands of ways to make money from the stock market but all it takes to succeed is ONE way.  However, majority of investors or traders often undergo an identity crisis. They switch and alter their trading styles frequently when faced with slight shifts in the market. It is quite common to find traders claim to be “value investors” but when a big shift occurs in the market they will chase after it without considering the true value of the company.  In order to earn consistently from trading, it is advisable that you identify your trading style and stick to it.

Consistency can be achieved by setting criteria for selecting your stock.  The most important criterion is growth.  When you put your money in a fixed deposit, you receive 2-3% in returns per annum.  When you invest in stock, it is only logical that you would expect more. Generally, expecting at least 15% return per year is considered viable business and worth the effort. Therefore, you should always look for companies that show consistent growth. Personally, I look for companies that generate 30% profit. This criterion is better known as Return on Equity (RoE). For example, when $1 is invested into the company, the net profit generated is $0.30. If this trend continues consistently and all profit is retained in the company, it can be expected that the company’s value will double to $2 in a matter of 3 years.  Although the market can be highly unpredictable, companies of this sort have a higher probability, not only to double its stock value in 3 years as but also to bounce back quickly in times of major crisis.

Besides that, traders should also broaden their horizons beyond the local market as the international market has an abundance of strong and financially promising companies.  Don’t be afraid to branch out and remember to always seek growth!