Asked on 13 May 2020
Any advice is greatly appreciated!
I think you should look into stocks and companies that occupy a large market share already, which is a fail-proof strategy for people who do not know much about the specific industry or about finance!
Next, understand its business model. You should be able to identify how the business earns money. For example, Coca Cola earns its money by selling the drink to its consumers. If it is something you cannot understand, then do not put your money into it.
Third, look at its potential for the long run. Does it provide value for people? Is it sustainable? Some of such stocks will lie in the innovation sector, especially those that have the potential for tech disruption.
Contrary to popular belief stock picking is not possible, even often cited Warren Buffet failed the last 5y & 10y against the SP500
Hello there! Congrats on starting out :) For stock picks, things that are important to note are firstly: The sector/industry the stock is in. Once identified, you can look for indicators such as ROE>15%(Return on Equity), Current Ratio>1.5(Ability to pay short term debt), Debt/Equity Ratio <1, free cash flow, dividend yield>4%. These are some of the few ones I look out for when researching a stock. There are also a plethora of indicators out there like ROA, ROCE, PE(which depends on each industry), PB, Net Margin etc etc. Point is to identify a solid business with characteristics such as: Strong economic moat (Think Apple and its operating system), Free cash flow (Is the company earning and have spare cash for rainy days?), Growing DPU over the years, Stable and sustainable dividend payout ratio. These are just some things to take not but there are more to it. Best is to do your own due diligience! A good place to start can be businesses you interact with on a daily basis (eg DBS, OCBC) and develop ideas from there. Good luck!
Warren Buffett and Charlie Munger has 4 key principles: (1) Choose a company and industry that you can understand (2) Honest and able management (3) Durable economic characteristics (4) at a sensible and attractive price.
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