NSE #11: What to look for in a stock you consider buying

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Even for the extremely analytic, buying shares is part emotion. There are companies we just like, and then find a reason to like them. There is something about them that makes us feel good about them, and it transcends all the reasons we can conjure. We simply try to find reasons for liking them. We like them before reasons.

It's those companies that come to our mind when we think of buying shares. We want to have an investment in them, to be a part owner of a company we consider a great [often without reasons].

So most of the buying decisions you'll make in stock investing are more of "not buying" decisions. You'll always have this mental list of companies you like and want to be an esteemed shareholder in. The real work is in figuring out whether to go ahead and invest in that company's stock or not.
And in today's post, I'll take you on a tour of things to consider when you want to make a buy decision.

image: ratesupermarket.ca

1. Island of Annual + Financial reports
Our very first stop in this tour is the Island of Annual reports. Fortunately, public companies in Nigeria combine the annual report and financial report into one. So once you get that yearly annual report they publish, you'll find the two reports in them. The Annual report is the first part, and the financial report (or statements) is the second part.
The truth is you won't understand some things in the report, but with my help, soon you'll understand all you need in that report.
I have put up the all the Annual Reports, of public companies in Nigeria, I could find at http://www.slideshare.net/olafusimichael  

2. The Desert of Analysis
After reading the annual reports cover to cover. The next destination is the desert of analysis.
You'll be making a simple financial model, which I will someday show you [trust me, it's not hard at all. I'll even give you the template, you'll just plug in the numbers].
It's on this desert you'll decide if the stock's future is bright enough to invest in.

3. The Margin of Safety Tower
And this is our last stop.
Here you'll be fixing the maximum price you are willing to pay for the stock. You'll be setting a margin of safety. It's the fun part of the entire tour. It's where your analysis meets reality. 
Soon, after doing this for a while, you will discover that you've got the ability to predict a stock's future. The science part of stock prices. But it's also a very dangerous ability, it makes you forget that there's the greed and fear part of the stock price fixing. It's here that the great professionals are separated from the good professionals. And you'll benefit more from experience and than knowledge at this stage.

And that's a quick guide on what to consider while making a stock buy decision.


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