In this article we look at how you can determine which stocks to buy. When buying stocks it is important to make the right decisions. In this article we briefly look at how you buy stocks and then we examine the best way for you to select stocks.
How can you buy stocks?
You can buy stocks through an online broker. A broker makes it possible to buy or sell stocks with a few clicks of the mouse. It is very important to make the right decision. Which broker you choose will ultimately determine how much return you earn by buying stocks; the transaction costs vary considerably per broker.
In short: which stocks?
- Stocks that are undervalued.
- Stocks that are overvalued.
- Stocks in stable businesses for the long term.
Short or long term
Before you can determine what stock you should buy, it is wise to decide whether you are going to invest for the short or long term. This decision is important because it will completely change your strategy.
Some people have a shorter time horizon from a few days to several weeks. When you buy stocks in the short term, you have to choose a broker with low transaction costs. It is also important to pay attention to recent news reports. Consider, for example, the news that a new product is being released by a technology company; this can give the price of a stock a temporary boost.
In the long term it is actually even more important to determine which stock you choose. After all, you will build up a portfolio and it is very important to select the right stocks. You retain the stocks in your portfolio for a longer period of time and it is therefore extra important to choose stable, profitable companies. The stocks you buy must then meet these conditions.
How do you determine which stocks to buy?
It is important to conduct an analysis before you decide which stocks you buy. It is possible to do fundamental analysis whereby you look at the news and the underlying figures. It is also possible to select a stock on the basis of technical analysis: whereby you try to find certain patterns within a graph.
In the short term, technical analysis plays a more important role. In the longer term, however, you should primarily look extensively at the fundamental value of a company. Next, it is important to determine the value of a stock. This allows you to decide for yourself if you think that a stock is undervalued or overvalued.
When a stock is undervalued, you buy the stock and hold it. However, a stock can also be overvalued. If this is the case, you can still make a profit. It is possible to go short where you benefit from a decrease in price. If you cannot determine whether there is undervaluation or overvaluation, you should leave the stock alone.
A few more important tips
It is important to get started practically. Many people linger in endless reading of annual reports or news reports, but that way you do not develop a feeling for it. Many brokers offer the opportunity to try out investing in stocks by means of a demo. With a demo you can try out the possibilities and discover which stocks work best, click here to open a demo >>
In addition, of course, knowledge is power. Before you decide which stocks you are going to buy, it is important to have a clear understanding of the weaknesses and strengths of the company. Analyse the data of the company and make a selection of the stocks that you would like to invest in. Then you can make a final choice and start buying stocks.
The perfect stock
In the end, it is important to remember that the perfect stock does not exist. However, it is still possible to profitably invest in stocks by determining the stocks you should buy. It is important to study and learn so you understand the underlying mechanisms.
Do not expect to get rich quickly; no, use your common sense and do not simply follow the crowd. Find your own path to success and spread your risks over multiple stocks. Moreover, remember that it is also possible to invest in other securities such as bonds and Forex. By spreading your investments, your chances of making good investment decisions will eventually increase!