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Friday, December 4, 2015

How To Pick A Stock

Stock picking is a skill. As with most skills, it is practice that makes you perfect.

You can learn to ride a bicycle in a day or two. The bicycle may cost Rs 3000. You just hop on to it, and try riding it – with the help of training wheels, or a friend. The chance of seriously hurting yourself in a fall is low (unless you decide to ride in Delhi or Mumbai traffic without adequate practice).

Learning to operate and ride a motorcycle is more complicated. The machine costs Rs 50000. You will need to learn a lot more about how to operate it, memorise road signs and obtain a licence after passing a test. If you don’t use a helmet, any accident can be fatal.

What does this have to do with stock picking? I’m coming to it.

In the investment context, buying a bicycle is a lot like investing in a mutual fund. Fill out a KYC form, a form from a fund house, write a cheque for Rs 1000 and you become an investor. You don’t need to know much about the stock market. The fund manager will take care of buying and selling of stocks.

Stock picking is more complicated. If you think opening a demat account and a trading account is all there is to buying stocks, it will be like riding a motorcycle in traffic without a helmet and being clueless about road signs.

In a recent article in investopedia.com, the various steps necessary to pick stocks have been explained.

You may also want to read a three-part series of posts I had written on stock picking for long-term investment. The links are given below.

Related Posts

How to pick Stocks for Investment - Part I
How to pick Stocks for Investment - Part II
How to pick Stocks for Investment - Part III

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