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How To Identify Top Stocks: Tips For Investors

Looking for the top stocks to maximize your returns in the stock market? If yes, then this article is for you!

Investing in the stock market is one of the most profitable ways to increase your returns. For this reason, more and more investors are moving towards the stock market. However, the only problem that concerns most investors, both experienced and beginners, is losing their hard-earned money by making wrong investments. No doubt, stock markets are subjected to risks and liabilities, but you mostly lose your money when you make investment decisions in a rush, without doing any research and analysis.

A person analysing the stocks.

To help you pick the top stocks, we have compiled this article with some useful tips. By following them, you will be able to select the best stocks that are safe as well as profitable. Let’s begin!

Tips to identify the top stocks

It doesn’t matter if you are a beginner or an experienced investor, below mentioned tips will help you make the right investment decision :

Choose companies, not the stocks

A majority of investors, mainly beginners, tend to pick stocks from any random stock broadcast. They simply analyse the performance of stock, rather than checking the complete performance of the company as a whole. Hence, it becomes a very abstract concept, which often leads investors to make poor choices.

Always keep one thing in mind, when you purchase the stocks of a company, you become a rightful part-owner of their business. This means you’ll have a fair share in their profits or losses. So, before you make a purchase decision, learn each and everything about the company. This includes knowing its whereabouts, source of revenue, partners, position in the industry, past performance, expected growth, current growth rate, etc.

Track last 5 years performance

Once you get familiar with the company and have enough information about its financial stability, you can start tracking its performance over the past couple of years, usually 3 to 5 years is more than enough. This will protect you from the companies that attract investors by showing their current profits and hiding the losses suffered by them in the previous years.

Check Debt-Equity Ratio, EPS

Companies having relatively low debt-equity ratios over the past few years are much better than the companies having higher debt-equity ratios but have recently cleared off their debts.

Most investors overlook this aspect and later regret it when the prices of their stocks hit rock bottom. In fact, once you build a habit of checking the EPS and debt-to-equity ratio of a company as soon as you hear about its stock investment opportunities, you’re already doing better than 80% of the investors. This habit will increase your knowledge and help you in investing in the right direction.

Do not Allocate more than 5% on single stock

Another mistake most newbie investors make is allocation more than 50% of their planned investment budget on the selected stock. So, when the stock performance goes down, they lose more than half of their money. Avoid making such reckless investments, if you want to invest safely.

It’s always better to have around 20-25 stocks in your portfolio. It will help you maintain a balance, and thus, you’ll become a mindful investor.

Use a stock screener

Perhaps the easiest and most convenient way of finding the top stocks is using a stock screener tool. It allows you to select the right stocks by providing you with a comprehensive list of all the available stocks based on predefined criteria. This pre-defined criteria includes a number of stock performance metrics such as market cap, P/E ratio, volume, debt-equity ratio, and many more.

Stock screeners help you save a lot of time and effort by providing you with well-researched stocks quickly. But to have this advantage, you need to select the right stock screener.

Don’t let your emotions be your guide

When selecting the stocks, don’t be fooled by your emotions. In fact, keep your emotions such as greed, excitement, fear, loyalty, anger etc. at bay when making any kind of investment in the stock market. These emotions can force you to make poor investment decisions. For example: you might end up picking a poor performing stock just because you’ve always been a loyal customer to that company.

Never overlook your research

While it’s true that there are tools like stock screeners that can help you select the top stocks, always use them in conjunction with your personal research. Never overlook the research aspect, if you want to become a mindful investor.

That’s it!!

These are some tips that will help you choose the top stocks and make low-risk investments to gain better profits. So, stick to these points and make better investments. We hope this article helps you.

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