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Fundamental research before equity investment

You should be aware of the company in which you are investing. Some basic ratio like PE and EPS should be known.

04 Dec 2008

  • You must have a clear idea of the shares you want to purchase, based on your investment objective, risk appetite, and the fundamental parameters of the share (stock). Some fundamental parameters are the earning per share (EPS) and the price to earning-per-share ratio (PE). The EPS is found by dividing the profit after tax by the outstanding number of shares in the market. Basically, do not just rely on recommendations received from your broker, friend, lover or anyone else. You can use these as a starting point, but ensure that you do your own independent bit of digging before you invest.

 

  • Another tip is if you feel a stock price is high, do not buy it. Only buy stocks that have scope for appreciation.

 

  • Yet another tip do not try to time purchases, as a matter of course. While seismic upheavals in the stock market will give you obvious signs to either buy or sell, do not rely only on timing the markets. This will turn you into a speculator rather than an investor.

 

  • And lastly, if your research shows that the prospects of the company you own stock in do not look rosy in the long term, get rid of the stock. Do not hesitate to liquidate your portfolio even before your targeted time horizon if you think that it isn't worth it. In the end, it is your money, and above all, you must be comfortable in keeping it invested.



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