Question

Discuss the diffent approaches that a first time investor may use to investigate a stock investment, furthermore strongly supporting the one you think is the best

Answer 1

As a first-time investor in the stock market, there are various approaches that investors may use. I shall describe a few below:

Investing v/s Speculating

• It is essential to know that you're investing into a company's stock and not merely speculating its price.
• As an investor, she/ he would invest thoroughly and purchase the stock by looking into the value of the company for which the price is paid.
• As a speculator, she/ he would purchase a stock merely in the hope that next trader would pay a higher price for it, thus benefiting from the same.

Company Value

• The company's stock that you hold shall be valuable, not only due to the fact that it creates a higher profit, but merely because the entity should at first be sustainable.
• If investments are made into stocks of company that are not sustainable, they would loose their value in the long term, facing bankruptcy.
• Thus, make sure that the company has a good/ positive brand value attached to it.

Fundamental Analysis

• The company's operating performance is also very important to review before investing into it.
• A good operating performance would be one with increasing sales, or higher profits (not only due to extraordinary items), lower expenses and higher margins.
• All the above positive indicators for the company.
• Similarly, it is also important to check the company's position in its market, the customer loyalty in the market, its competitors, the sustainability of the industry as a whole and so on.
• An addition of SWOT analysis should also be included.

Volume

• Any stock investments made, should be actively traded with good amount of volumes.
• The main reason for this is that in case of an unfavourable scenario, if the investor is willing to share their sales, an active and liquid market shall exist to get the right price for it.

According to me, these 4 go hand in hand and must be used together for effective investing in the stock market. Each of the stated factors must be considered when investing.

Investors may also use Technical Analysis.

• Technical Analysis, as opposed to fundamental analysis involves the understanding to graphs and charts to take positions using various indicators.
• However, Technical Analysis is not considered as investing in its real sense, but much more inclined towards speculating.