Choosing Good Stock Investments
Start by Narrowing the Field
When looking for good stock investments, I am immediately confronted with the multitude of companies offering shares on stockmarkets.
I manage the task by narrowing the field of companies to those that appear to provide the greatest value with the least risk.
If I can rule out a substantial number of companies for good reasons, it helps to reduce the complexity of the task.
I provide links below to those companies or offerings that I generally rule out. By taking these suggestions into account, I will be more likely to choose companies that offer better value.
The benefit to me in excluding the above six categories of companies from consideration is that the overall risk in choosing to invest in some of the remaining companies will be significantly reduced, without compromising return.
Risk reduction, while maintaining a high return, is the name of the game! The risk of loss is real – it can be minimised but not eliminated.
Being able to avoid the risky companies is one thing. But how do you go about choosing the hottest investment stock? One way is to think of the opposite of each of those categories in the above list.
Here goes ...
- Companies with a significant financial history
- Multiple-resource companies e.g., BHP Billiton
- Companies with minimal capital requirements
- Medium to large companies
- Unregulated companies
- Companies with a strong competitive advantage
This still leaves plenty of companies to choose from so that you can easily find a good stock to invest in.
But there are further important criteria that I look for, some of which I find using a stock market screener to filter the best screener stock.
This criteria includes a return on equity of 15 per cent or more, zero to low debt and at least five years of financial information.
After all that, consideration is given to qualitative aspects of the remaining survivors.
Then I can be reasonably assured that I will end up with the best value stock.
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