Investing in Stock Markets is always interesting. The stock prices move up and down and give you a lot of opportunities to make money.
However, everyone does not make money in the Stock Markets. Some people end up in losses as well. And this is because they don’t do proper research before buying the stock.
Although Indian Share Market are expected to keep growing at a decent pace for the next few years, this does not mean that all the stocks will rise. Some will rise while some will fall.
And this is the reason why engaging in a proper research before making any investment is very important. Nobody wants to invest in stock whose prices may fall in the future and lead to losses.
3 Important things to analyse before buying any Stock
There are several things to be checked before investing your money in any stock. Some of the most important factors are mentioned below:-
- Expected future of the Company:
If a company is dealing in goods which are expected to become obsolete in future, the company’s profit will go down which will also lead to a huge decrease in the company’s share price.
I’ll explain this with the help of an example. In the early 2000’s – Kodak was a very popular brand and was dealing in photo printing. It had huge profits and its shares were also very actively traded as everyone used to get all their photos printed.
However, with the introduction of Digital Cameras and Mobile Cameras, people stopped using the traditional camera with reels and opted for Digital Photography. As a result of this the profits of Kodak dropped massively which led to a huge decrease in the share price of Kodak.
The whole photo printing industry in which Kodak was operating suffered huge losses because of the shift to digital photos and the investors lost a lot of wealth. Therefore, it is highly advisable to invest only in stocks whose future appears bright.
- Quality Management
The management of the company is also a very important factor which decides the future of the company. If the management is not good, they may not be able to monitor a big business and the profits will start falling due to mismanagement.
Or if the management has bad intentions, they may siphon off the money to their personal accounts rather than reporting this in the company accounts. Nobody wants to invest in a company like Satyam or Kingfisher or Gitanjali wherein the management has bad intentions, as a result of which the stock prices came tumbling down.
- Price and Intrinsic Value of a Stock
The price at which a stock is traded on the stock exchanges may not be the true and fair price at which it should trade. Sometimes, the stock is trading at a lower price than at which it should trade and other times – it is trading at a higher price than at which it should trade. However, in the longer run – all prices adjust to its fair value.
There is no point investing in stocks which are trading expensive to their fair market value as in the longer run, the share prices of these companies will fall to the level of their fair market value.
Profit making opportunities are only there in those stocks which are trading lower to their fair market value. And therefore, it is very important for an investor to know the fair market value of the company in which they are investing.
Making use of Equity Research Reports
Apart from the above mentioned points, there are various other factors as well which are to be checked before investing in a company. Checking so many things may not be possible for investors as these are time consuming tasks.
And this is where Equity Research Reports come into play. Equity Research Reports are reports which are released by major brokerage houses wherein they do a complete research of whether it is worth investing in a stock or not.
They explain the complete gist of what is working in the favour of the company and what is not. These research reports may be company specific or industry specific.
They mention what in their opinion is the future of the company and what are the challenges and risks which a company may face in the future.
In short, they do a complete review of the company and recommend whether you should invest in a stock or not and explain the same with reasoning.
It is this analysis and the reasoning which is mentioned in the research report which is worth reading. Their reasoning will help you make an informed decision and may mention some points which you may have missed out.
And this is the reason why reading research reports is always advisable for investors who are directly investing in stocks. These research reports help a person make an informed decision about the future of the company.
However, don’t blindly rely on a single research report. Read a couple of research reports as reference material and in case you are convinced that a company and its share price look lucrative to be investing in – then only invest in the company.
Read the research reports, then do your analysis and then only invest.
These research reports may not always be right as nobody can predict what will happen in the future. It’s only that these research reports help you make a more informed decision.
Moreover, as these reports are prepared by experts – it helps you understand what the stock market experts think about a particular industry/company.