Many people have been asking the common question on what to buy for their investment in stocks.
Well, before we can answer the question, it is important for the investor to be very clear about the following few factors that may affect his/her selection of the stocks:
Identify your Investment Objectives
It is important to note that a clear investment objective is critical as it will determine the type of stocks that match the risk appetite of the investor with the varied inherent risk of the stocks for selection. To be successful in investment, the investment style must be in sync with your risk appetite, holding period and personality. If you want to be a trader, you must accept that selling a stock for a quick profit but only to watch it going up further is of no concern to you.
If you want to be an investor, select the stock(s) that meet the pace of the time horizon you are expected to hold and the risk involved. The characteristics of the investment grade matured stocks are very different from the higher risk of the growth stocks and cyclical stocks.
However, if you choose not to take any risk, to play safe and not investing in any stock, you will never understand what it feels like to accomplish your dream.
Besides considering the specific volatility risk of the stock, other factors like the potential returns, the holding period and the risk exposure of the capital are also important considerations before making an investment decision.
After sorting the issues on the risk appetite, rate of expected returns, the holding period and the amount of capital set aside for investment, it is then possible to create a list or multiple lists of potential stocks that match the risk and fundamental criteria for investment or trading, depending on the investor’s objectives.
Most investors would focus on stocks with fundamentals as their primary stock selection process. Hence, the most logical search will be those stocks with high earnings growth rates, strong operating cash flow that are able to meet the short term obligations to repay the loan and interest payment. Many would also look for good returns on equity (ROE), track records and reasonable gearing so that the business would not be subject to stress when the lending rates of the banks increase. Other fundamental factors of interest to many also include high profit margin, fair valuation and the right industry with good theme play at the time.
After considering the risk factors relating to the different category of stocks and setting the relevant fundamental factors to sync with the original purpose of investment, it is time then to focus on certain specific technical setting of the price-volume action to determine the right time for entry of a position. There are investment ‘gurus’ commented that timing is not important and one should buy the share with good fundamentals as and when one has the money, periodically or at regular intervals (like when getting monthly salary time) so as to capitalize on the principles of “dollar cost averaging’ effect. However, I would think that ‘timing’ is important in determining the potential gain or loss of a position, particularly if the person is indulging in the short term trades. Even if one claims to be a long term investor, timing can affect the ultimate game plan and expand the potential loss or gain as it has an impact on the psychology of the investors especially when the stock price moves and fluctuates randomly after an entry is made.
Hence, we would like to encourage investors to create a list of stocks that meet your investment criteria (can be based on fundamental and technical criteria or just purely technical or fundamental considerations). Thereafter, monitor these stocks for price and volume breaking out of their existing sideway trend or recovering from down trend for early entry at the low risk. The stocks list is to facilitate easy identification of the trigger in any of these stocks that demand closer scrutiny to enable timely entry at the soonest possible time when the stocks start to move up or reverse an existing trend.
https://klse.i3investor.com/blogs/bulltraderseducation/2019-12-24-story-h1481916671-Bull_Traders_What_Type_of_Stocks_to_buy_for_investment_or_Trading.jsp
