Date Posted: 8/28/2013 4:08:30 AM
Posted By: Ombaba Membership Level: Gold Total Points: 1110
The stock market has been touted to be one of the fastest ways to generate wealth. However, many people view the stock market as a very risk investment vehicle due to unpredictable nature of price movements of shares. For the long term though the stock market outperforms all investment vehicles if an investor buys into stocks of good performing companies. So the question then arises, how do you which companies' shares to buy? Below is a brief discussion of a six stock picking strategies you can use to decide which company you will buy shares in.1. Fundamental Analysis:- Fundamental analysis is concerned with finding the intrinsic value, that is what you believe a stock is really worth as opposed to the market value. By determining the intrinsic value then you are able to decide whether the market has under-priced or overpriced the stock and take appropriate action.2. Qualitative Analysis:- Qualitative analysis mainly looks at the management of company and whether that management is sufficient to drive a company's earnings. The main people looked at are the CEO, CFO, COO and CIO. The management philosophy of the company is also reviewed, past actions of the management are looked at to determine how future decisions might be made. You also have to know what a company does and how it makes money, in which industry is the company operating, the industry trends and competition the brand of the company e.t.c.3. Value investing:- value investing is concerned with finding companies that have strong fundamentals that is earnings, dividends, book value, and cash flow that are selling at a bargain price. For example if you determine that a company's intrinsic value is kshs 20 and yet its market price is kshs 10 then you have a fifty percent discount. The assumption of this method is that in time the market will discover the true value of that stock and adjust the price accordingly. Value stocks are normally characterized by low price to earnings ratios i.e the market price divided by the current earnings per share. Proponents of value investing always give themselves a margin of safety. That is a percentage of the intrinsic value that has been determined is given as a margin in case of an error in judgement.4. Growth investing:- Growth investing is purely concerned with the future potential of a company. This is determined by a history of strong earnings as well as a prediction of strong forward earnings growth from current data available. Growth investing does not take into consideration the current market price so long as the company displays a huge potential for fast growth in the future. Growth stocks are often found in new or fast growing industries or companies that have launched new and popular products.5. GARP Investing:- GARP an acronym meaning Growth At a Reasonable Price is a form of investment strategy that is a combination of both value and growth investing. The stocks picked should show potential for large growth but still satisfy the condition of a fair price currently.6. Income investing:- Income investing considers those companies that provide a steady stream of income by means of a regular dividend. This companies are normally established and steady and are not majorly affected by changes in economic conditions. They have high dividend yields -dividend per share/price per share- normally above five percent, and also have a large pool of retained earnings to increase their investments.The greater fool theory:- although this is not an investment strategy perse, most uneducated people on the stock market trade using this theory. The theory states that one 'the fool' who buys a stock at any given price without considering any fundamentals hopes to sell the same stock to another person 'the greater fool' at a higher price.If you are intending to use any of these strategies, i wish you all the best. Disclaimer: none of the strategies above or any strategy you come across is foolproof.
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