A guide to Investing in Long-Term Stocks-WWNEED.COM
Long-term investment enjoys a greater degree of safety and less risk than daily speculation in stocks, but it needs a longer time from the purchase process to reaping profits, and the liquidity in this type of investment must be high because often the projects invested in this type are large and huge.
The goal of investing in long-term stocks is to achieve financial gains in the long term, but this does not mean that investing in stocks in the long term is better or worse than investing in the short term. In short-term trading, while the most experienced investor who desires large profits for a long-term project will turn to a long-term investment.
5 steps to long-term investment
As a trader or as a long-term investor, you need to know the steps to invest in long-term stocks and its important tips:
Step 1: Determine the real value of the shares
This is evident in knowing the stocks that are currently valued at less than or more than their value. Once you do that, you can determine the price that reflects the true value of the company, and start looking at the company’s earnings report, where you will need to calculate some ratios, including current financial ratios, performance or efficiency ratios, and evaluation ratios.
Financial current ratios tell you whether the company has enough money to pay its expenses or if it is in danger of going out of business. And by using data from 2 to 5 years, calculate the current liquidity ratio, the quick liquidity ratio, and the debt-to-equity ratio.
Performance or efficiency ratios mainly tell you whether management is effective in making the most of available capital and assets. Consider an analysis of return on equity and return on working capital.
Valuation ratios tell you whether they are over or undervalued and consider an analysis of the price-earnings ratio.
Step 2: Record the data
And that consists in creating a detailed file for each company, and by using the ratios discussed earlier, you can compare different companies in the same sector, and using a spreadsheet makes this matter easier because it gives you the opportunity to get all the information in one place.
Step 3: Analyze all the data
This is done by referring to a quick reference list that helps you make simple and logical decisions and compare the share price of each company with the index in which you trade and the business sector to which you belong. This information allows you to know whether the company is underperforming or high-performing compared to other companies. And always ask yourself why something is happening?
As an example: If a particular company is underperforming in this sector, checking the financial ratios again can help you determine if it is undervalued.
You should check for changes in performance rates and financial valuations for each company over the past 2 to 5 years, this will tell you if the company’s financial performance is improving or worsening. You should also look at each company’s balance sheet and read the news to compare the valuation data, if indicated The evaluation indicates that the company has been undervalued, and the existence of a deterioration in profits confirms this.
Look at the ratios of each company in the context of its current plans. Seeing management successfully reduce costs can make you less afraid of lower returns on capital. Do not forget to use the financial condition to classify the companies you are interested in as high risk, medium risk, and low risk. This will provide you with an appropriate context to see other ratios. Another way to refine your list is to rank companies using a specific system, for example from 1 to 5 i.e.:
- 1 means strong probability
- 5 means low probability.
Step 4: Choose your shares
Once you have everything in mind and applied to your list of favorite stocks, you should have identified 2 or 3 stocks that you want to invest in, however note as with any form of fundamental analysis each stage of the process involves a level of objectivity As there is no one-size-fits-all method for choosing the stocks to invest in, but the more experience you gain, the more you can find what suits you.
The basics of investing in long-term stocks
One of the important rules in long-term investment is indifference and attention to rumors. Often you may hear news from one of your relatives, friends, or even your colleagues at work, about a high price or trading in a share in a company. You should not rely on this speech, because the wrong talk It spreads quickly.
Do not be afraid of the slight changes that may occur in your investments, which may witness fluctuations in prices that occur and last for a short period. You have to see the bigger picture and study all the company’s movements and its current and future status, as fluctuations are inevitable and unpredictable.
As an investor or trader in long-term stocks, you must have a high degree of confidence in your investments, and not let the small changes that may occur transform you from a long-term investor into a short-term investor. Trading depends on the new changes, and you must always remember that investments are short Long-term profit from those changes that occur and price fluctuations, while long-term investments depend on long periods of time up to years.
In long-term investment, dividing the financial portfolio is also a necessary and essential behavior for any investor. Put your money in more than one market between stocks, bonds, hedge funds, etc. You can also invest in more than one market and geographical area to be able to benefit from the advantages of each market.
Sometimes when the investor sees that one of the shares of which he owns a share has decreased in its market value, he clings to it in the hope that its value will return to rise at a later time, and this is one of the wrong habits in investment, so the investor must know when he should give up a share.
summary
Quick profits from trading and short-term investment may only attract people who are new to investing in the market, but long-term investment is an important area for investors who have experience to achieve long-term profits.
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