Know How To Buy A Stock
While choosing a stock, make sure you are in line with guidelines of the stock portfolio management, described in Eudividend Investing System. For that you have to consider the following metrics.
- Market conditions. Do not invest when the market is in clear downturn.
- Diversify your portfolio by 5-6 industries with 3-5 companies in each of them.
- Pay attention to the size of the company. Larger companies are preferable to smaller ones.
Decision Making Process
- Understand how the company performed in the past
- Understand its current situation
- Evaluate how the future of the company could unfold
Then apply your judgement how you see the balance of the past, current and future company conditions.
Is that particular combination right for you?
Is it something you are looking for?
Do you understand how the company makes money?
Are you ready to share good and bad times with that company?
The decision you take depends on your personal attitude to risk, on the level of your experience and confidence in investing.
Eudividend tools facilitate this decision making process. In order to investigate a particular stock, you can enter ticker on Eudividend stock screen and see company’s past performance graphs. Comments next to each graph guide you how to judge the company’s performance in respect of data on a graph.
Past Performance of Company
Let’s look at the fundamental data in more detail. We know that past performance does not guarantee future results. However, we can use it as one of the indicators of the company’s future performance. It allows judging how the company performs relative to its peers.
Estimate of Future Performance
This is about collecting information from the company’s financial reports, analysts’ researches, recent articles, etc.
The company can strengthen its business by introducing new products or services, expanding geographically, increasing prices, acquiring another company or in some other way. Evaluate what tools the company would use to succeed in the future.
Do not forget to consider the long term prospects of the industry a company belongs to.
If you think it is a good company in terms of past performance and future expectations, then check how reasonable is its current stock price. On Stock Screen page make your estimates of future sales, earnings and dividend growth. Then a stock price estimate is calculated automatically. So you can judge whether the company is expensive or not with regard to its historical Price – to Earnings Ratio.
A stock price estimate is calculated as follows.
We evaluate what could be the stock price in the future and compare it with the current stock price. To make a stock price projection we use a historical Price – to – Earnings ratio (P/E) of the stock.
The price of a stock in 5 years is calculated as average P/E over the last 5 years multiplied by Earnings Per Share (EPS), expected in 5 years in the future.
Before investing, be confident that the company could succeed in the long term. Before you buy a stock, always write down the reasons WHY you decided to buy that particular stock.
The more efforts you put on picking the right stock, the less of a problem will be selling a stock.