If you’re new to stock investing, these are a series of posts to get you started.
Learning to invest in the stock market is different from say, learning maths. Whereas everyone eventually reaches the same solution in the latter, there’s no one right answer on how to invest well. Nonetheless, there are overriding similarities between learning the both, or any sorts of skills. The fastest way to learn a skill is to deconstruct it by breaking it into pieces, strip down to their essence, and examine the fundamentals.
The strategy that you choose will determine how you pick and what you buy, which in turn decides how you allocate your capital and ultimately, when do you sell them. In this post, I will dive deeper into the thought process behind selling.
Position sizing or how much to put into a stock is as important as picking the right one. While one will miss the chance to earn a superior return if too little is placed into a stock that turns into a winner, having too much inside one that becomes a lemon is a disaster. Therefore, finding the middle ground is the key and here we will go through some simple ways you can apply to increase the odds of superior return while keeping risk in check.
Price to Earnings ratio is the most widely used tool to gauge the attractiveness of a stock. But it is important to know the limitation of PE ratio so we don’t fall for the “everything looks like a nail to a man with a hammer” illusion. Here are a few things to understand.
Since 1930, dividend has been responsible for 42% (on S&P 500) of the stock market return so there’s little surprise that it is one of the main criteria we look for when picking stocks. However, in investing, everything involves an opportunity cost. So the question to ask is – Is focusing on dividend as a key selection criterion the right strategy for me?