- Some of the most influential investors have created a checklist for a profitable investment in the global financial market.
- A well-drafted checklist helps you balance the pros and cons of making a specific investment.
- Benjamin Graham suggests not to invest in firms which have debt load higher than 110% of net current assets.
- Warren Buffet, the ‘Oracle of Omaha’ suggests that one should put his money in the sector which he understands.
- John Neff has always preached to follow a low price-to-earnings (P/E) methodology for making investments.
Acing the art of investing is not a cakewalk. It takes in a lot of time, effort, years of experience, apt judgement, balanced opinion and much more for making a profit-making investment. In this article, we have elaborated the checklist that has been devised after studying some of the most influential investors from across the globe for a profitable investment in the global financial market.
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Why does one need an investment checklist?
A well-drafted checklist can help you identify profit-making stocks and guide you through ultimate success through wise investment decisions. It helps you balance the pros and cons of making a specific investment. Also, a well-researched checklist will not let you miss out analysis of any probable loss.
Going against the checklist may cost you heavy on your pocket and cause an irreparable damage to your growth. So, go through the checklist given below and quash the possibility of wrong investment calls.
Take in account the company’s total debt to current asset ratio before capital investment in it. Investment in a firm which is under a debt load higher than its owned assets is not advised.
A company has a better probability to sustain if it bears a low debt load on it. It eliminates the chance of surrendering its fixed assets to pay the debt.
Benjamin Graham suggests not to invest in firms which have debt load higher than 110% of net current assets (for industrial companies).
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One of the most successful investors in the world, Warren Buffett, has a treasure of points under investment checklist. Here, we have listed the one that he professed the most – understanding the business you invest in.
Before any investment, the investor must develop a rational outlook towards the company, its varied performance data, prospects for future and the scope of loss. The ‘Oracle of Omaha’ suggests that one should put his money in the sector which he understands.
Interesting read: Five stocks Warren Buffett is still pursuing
One of the legends in value investment sphere, John Neff has always preached to follow a low price-to-earnings (P/E) methodology. It is a good measure for stock valuation. The ratio helps us understand if a stock is undervalued or overvalued in the market.
The P/E ratio can be calculated by dividing the market value price for a share by the firm's earnings per share. A low value for P/E signifies that the present price of the stock is low relative to earnings, while a high P/E value suggests that the price of the stock is overvalued.
“I am not a professional security analyst. I would rather call myself an insecurity analyst,” said George Soros. The legend believed that one’s ability to recognize his fallacies in decision making and being unsure or insecure about it, adds to his caliber.
Awareness about probable risks and falls in the stock performance keeps the investor prepared for an action to sell or hold the shares at the suitable time. An investor must remain open to change his stock portfolio as per its performance in the market.