How to Pick Stocks to Invest – A Complete Guide to Find and Invest on Best Stocks

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Starting with stock selection and finishing with selling of the stocks, there are 8 essential steps that every investor must follow. You can find each steps outlined in this article. This will help to know on how to pick best stocks to invest.

I frequently get questions about how to pick the best stocks and shares to invest in. This is a common concern among both new and experienced investors. Continue reading this article to learn about the important steps to find, evaluate, select and invest to the best stocks..

This article presents 8 essential steps to pick the best stocks to invest:

  1. Identifying best stocks
  2. Initial shortlisting of stocks
  3. Evaluation of business (both Qualitative and Quantitative)
  4. Final shortlisting of stocks
  5. Monitoring the stocks
  6. Buying the stocks
  7. Holding the stocks
  8. Selling the stocks

1. Identifying best stocks

First part in this guide is identifying the best stocks to invest. How to identify the best stocks?

One of the best method to identify the stocks are from own life. I never miss any packet and even when buying some medicines, just check the company name. Think like upon getting up from bed. We use paste, have a cup of tea etc… all have companies to noted. Who make the paste and tea belongs to whom etc have to. The soap, towel etc matters… this is one of the method to find the best companies… do not miss the rapper or cover of anything you buy, but just check who manufacturing the same..

our leisure, friends, relatives and whenever we are with this all, have huge chance to get best companies from the products using during the time.

Check with even the necessities. Utilities lie gas, power, phone, net etc.. pharma, FMCG etc give ample opportunities to us to find the best companies.

2. Initial shortlisting of stocks

Once found a list of stocks, this is the time to shortlist. Get 10 to 15 best companies. Shortlist it to monitor further. The business, price all matters.. Learn about the companies/business, management, products etc and from all angles. This is must. Be with here and have a look.

3. Evaluation of business

We have two evaluation methods. Qualitative and quantitative.

a. Qualitative evaluation

Start with the company website. Lear about the products, management, annual reports etc.. Qualitative means the quality of the business, products and management. This article will give idea on where you should focus.

While reaching to the website, start with ‘About us” menu.

b. Quantitative evaluation

Bit tough part as math/statistics matters here. This is the important part to choose the business to invest or not. You have to specifically note below ratios: (Nothing is simple so you have to.). Start with below ratios:

  1. EPS (Earning Per Share)
  2. PE (Price to Equity) (Both EPS and PE related to find the fare value a stock and an article soon on this)
  3. ROE (Return on Equity
  4. ROCE (Return on Capital Employed
  5. Debt (both debt and debt ratios)
  6. Sales Growth (for 5 and 10 years. It must be more than 15%)
  7. Profit growth or CAGR (15% or high for 3, 5, 10, 15, 20 years)
  8. Dividend Yield
  9. Inventory Turnover (Just inform you whether the products sitting in basket r customers buying it. It is important.)
  10. Free cash flow – Very important. it will help you to identify how business able to move further.
  11. Reserve fund – Check this. We will get an Idea on how company can deal with debt if have.
  12. Investments – Check the details about new products or factories company have started. Annual report or report to the stock exchange will help you to identify this.
  13. Pledged shares: Check the % of shares in the hands or promoters and whether they have pledged the same or not. I generally leave the companies were found promoters pledged their shares.
  14. Market cap – Identify whether it is a large, mid, small, blue chip company. Compare with peers..
  15. Face Value – Looking for dividend, here you should focus. Dividend % is on face value of a stock.
  16. Net profit – 15% YOY hike is expected from good company/business. Debt of a company should meet with this.

So that’s it in quantitative.. Learn the ratios well..