5 Important Points You Need To Know About Every Stock You Buy

Investing in different investment vehicles and getting huge returns is every investor’s dream. But the fear of losing money and an overwhelming feeling of doing a lot of research about the investment market is also on everyone’s mind.If you are not a professional investor, then you will identify with what has been said above. But there is no need to fret. You can identify some critical areas of research that you can deep dive into before investing in stocks. Let’s see what they are:

• Know About the Companies Do exhaustive research on the companies whose stocks you want to buy. What sector are they in? What kind of business are they into? What is their position in the industry? Are they market leaders? How has their performance been in the last five years? Who are their competitors? What are their future plans?All the information is readily available on the internet, in newspaper reports, company’s annual reports. All you have to do is spend time learning it and simplifying it for yourself.
• Price to Earnings Ratio The PE ratio or the Price-to-Earnings Ratio of a company is calculated by its current share price to its per-share earnings. This ratio can be used for comparison with other companies in the same sector to determine the relative value.If another company has a higher PE ratio, then they may be overpriced, but it could also mean that the company is growing very fast. If it is lower, then that company could be underpriced; you could still keep watching it to see its growth.
• Beta Beta is a measure of the systemic risk of a stock as compared to the stock market. An ideal stock will have a beta of 1. If a stock has a beta higher than 1, it means it comes with higher returns as well as a higher risk. If a stock has a beta lower than 1, it means it comes with lower yields as well as a lower risk.
• Dividend If you want to invest in stocks that have stable returns with low risks, invest in those with a high dividend. Dividends are payouts that companies offer to shareholders at regular intervals. When a company makes a profit, a percentage of it is distributed amongst the shareholders. Dividends are usually given out in cash or stock shares.The best dividends are offered by large companies with predictable and stable profits. Newer companies or start-ups are unable to provide dividends just yet.
• Volatility Lastly, check the volatility of the stock, i.e. how much has it swung up and down in the past few years. Checking its standard deviation is an excellent way to do that. A highly volatile stock might be a risky investment, and a less volatile stock will come with less risk. Remember, the amount of return also directly depends on the risk.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.