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How To Choose A Stock By Making Use Of Shares Investment?
Education | 26 February 2010
By: Xavier Lim
Articles (51) Profile

Learning how to invest in the stock market is always more than just a little tricky. With hundreds of stocks available to choose from, investors should develop a systematic approach to evaluate stocks in order to make their selections easier.

This writer recommends investors to narrow down their options by screening companies based on criteria that are important to them and in line with their financial goal and risk tolerance. But there are almost 800 listed companies’ stocks available for purchase on the local bourse, so how do you go about finding the right ones to buy?

Our user friendly magazine, Shares Investment (Singapore) and website www.sharesinv.com provide easy to understand and up-to-date data of all listed companies (which a lot of other magazines and websites are lacking) for investors to quickly compare stocks against stocks in the same industry or different industry. We provide fundamental data such as ‘discount to NAV‘, ‘profit decline‘, ‘highest ROA‘, ‘highest ROE‘ etc, to simple charts. Many of our tools are proprietary and have been developed in-house to meet the needs of sophisticated investors.

Screen Through All Stocks

This writer suggests that your initial screening should be based on a few quantitative analyses that you think are the most important for your investing. For instance, if you are interested in value stocks, you may want to look for companies with low P/E ratio(refer to pg 42 & 43) or low P/B values. If you are looking for growth stocks, you might look for profit growth (refer to pg 50 & 51) over a certain period. All these information can be easily found in Shares Investment (Singapore) and www.sharesinv.com.

Once you have narrowed the options, the next step is to do your research. Do not rush to buy. A good stock will still be attractive next week or even next month. If not, why do you want to own it? You can use Most Rated ‘BUY’, Most Rated ‘HOLD’ or Most Rated ‘SELL’ provided on our website to ‘feel’ the market’s opinion on the particular stock you are interested in.

Next, you probably want to evaluate the company’s financial information, such as profit and revenue growth. Ideally, the company should be able to maintain stable or increasing margins as compared to the industry’s. You may want to refer to Understanding Fundamental Analysis Part 5 and 6, or alternatively, you can look under the Education column on our website to understand more on how to read a company’s financial information.

Some investors look at whether the management is buying stock in the company as an indicator of how well the company is doing. Some investors believe that if a company is poised for growth, who knows better than the management? This means that if the management is buying up the company’s stock, then that is a great indicator of the stock’s potential. If you also look at this as an indicator, you can simply refer to page 32 & 33.

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Stay Updated With The Market

Thereafter, you may want to take a look at the price or value of the entire company (not just the company’s current share price), its market capitalization, which is the cost of buying the whole company. Literally, every company has a different number of shares outstanding, making share price comparisons meaningless. Why? This is because a stock which is trading at $10 per share might actually be cheaper than a stock trading at $1 per share; the stock that is trading at $10 per share may have a P/E ratio of 1, rather than the stock that is trading at $1 per share with a P/E ratio of 2.

Once you have invested in the stock market, pay attention to the market and companies you have invested in. However, you need not search for news, look at the share price or read research reports daily, even though the stock market changes everyday. As a value investor, simple market factors that cause fluctuations in stock prices are not of great concern. You can do a weekly search for news about the company using our website, or just get a copy of our magazine every 2 weeks to make sure the company you invested in continues to do well.

Alternatively, you may also subscribe to our free daily e-mail newsletter.

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.


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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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