- 10 aspects to look for in a stock you buy:

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10 aspects to look for in a stock you buy:

Wednesday, 23 May 2007

Ten vital aspects to look for in a stock before you buy:

If you may well look at the following ten things in an investment object before you buy I give my word that you will have a very minimal chance of making a bad investment decision.
I will try to analyze some thumb rules you may want to adapt to as you grow in familiarity of investing in the stock markets I am confident that the following a fixed set of rules will help you keep your emotions far-off the selection process.

Checklist for Investing in the Indian Stock Market:

1.The current market price must be above 50 and 200 days moving averages.
2.Look for trading volumes of at least 100 thousand shares.
3. A company with minimum annual sales of Rs 100 crores and above would be an ideal candidate for investment.
4.Don’t worry if net profit is zero.
5. Past five years sales growth should ideally be 15% Year on Year.
6.Past five years Income growth should ideally be 15% Year on Year.
7.Look for institutional investors holding in the company’s stock this should ideally be above 30%.
8.Debt Equity Ratio 0.4 would be the ideal figure.
9. Future earnings growth forecast 15% Year on Year would be ideal.
10. PE ratio is another factor to look for but this defers case to case

I will elaborate the above please read on .. while this is the explanation to the first point how would you feel if the stock you have bought into just of late started to get hammered by the market, the reasons for the down ward march could be the company may perhaps not be getting enough orders, possibly a major deal got a set back, and some insiders could have sensed the trouble and started selling even before the company announced the occurrence, it could be any thing.

This makes all the more important for you to take a look at the moving averages the price movement must show a clear uptrend that verily reflects the market mood towards the stock remember you know very little about the company there is a lot if insider information on any stock and things begin to show up in the price movement of the stock even before there is an announcement from the company be it negative or positive.

Conclusion: Stay away from a stock that is on the down trend and is trading below 50 to 200 days average price trend.

This is my explanation to the second point inline please read on necessarily look for volume of traded shares this should reflect increased buyer interest when big investors start buying a stock the price starts to move up and this reflects in the price movement.
Any BIG buyer would never buy in straight sessions if he does the price will soon move out of his reach because of the quantity he is buying, a typical BIGGIE buying style would be like ..

Day One buys 10000

Buying Patern for a Stock on Up Move

Day Two sells 8000
Day Three buys 12000
Day Four sells 10000
Day Five buys 15000
Day Six sells 12000
Day Seven buys 20000
Day Eight sells 15000
Day Nine buys 30000
Day Ten sells 20000

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While this is how any big buyer would gobble down a momentous amount of shares in the company I have illustrated this kind of buying pattern and the net bought position in a span of ten days would be in a range of 22000 shares bought, thus reflecting the buying and selling activity in the graph and the amount of shares netted by this method will go unnoticed.

Conclusion Look for Volumes and Price Trends.

The other Eight Points I have outlined above are very much self explanatory, and if you follow the above straightforward rules there would be very little chance to go wrong with your probable investment candidates.
Happy Investing

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Reviews (5)

1. Written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , on 13-12-2007 05:49
Whatever you do dont buy the RPL stock!!! They cheat investors!!

Read here ->
Between November 1 and November 6, 2007, a particular group made short sales of 10crore shares of Reliance Petroleum in the futures segment of National Stock Exchange costing Rs.3,000 crores approximately. they made a cool Rs 1,000 crores in less than a month, because the Reliance Petroleum shares have now crashed from Rs.295 to Rs 195 per share!. These guys have made Rs.100 per share.

isnt it ironic that someone knew that RIL was going to sell a huge quantity of shares and the prices were bound to come down?

My 2nd question is Who financed these traders for their margins? Where has this profit gone? and who bore the loss???

Its innocent small investors who bought Reliance Petroleum shares at the high prices, not knowing that this unholy alliance was indulging in insider trading and making illegal profits while Mukesh Ambani's own company RIL was selling shares without disclosing this to investors!!

2. Written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , on 10-06-2007 11:04
good suggestions. I like all of them

3. Written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , on 06-06-2007 19:57
great say

4. Written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , on 26-05-2007 12:16
:) These are Text book basic policies hard to maintain always but nice to have fundamentals correct while investing.

5. Written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , on 25-05-2007 15:39
this is a very stringent test very few scripts will pass this test and lot of time to research the criterion