How can Canadian investors smartly pick stocks?

Highlights

• Stock market investing can be a tricky game, but people can enhance their wealth over time if funds are parked timely in the right stocks.

• Proper analysis, investment strategies, and some ground rules could help investors earn significant gains and eliminate the probability of losing their moolah.
• Noting the company's performance, especially during economic shocks and downturns in the past, will indicate its capabilities to withstand unfavourable market situations.

Stock market investing can be a tricky game for the prevalence of risks and volatility is undeniable, but people can enhance their wealth over time if funds are parked timely in the right stocks. Look at Mr Warren Buffett!

Proper analysis, investment strategies, and some ground rules can help investors earn significant gains and eliminate the probability of losing their moolah.

On that note, let us explore some tips of how to smartly pick stocks for your investment venture.

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Also read: ETF vs Index Fund: Which is a better investment option?

1.    Pursuing stocks you know or are keen to know about 

Some experts believe that it is better to evaluate and invest in businesses that you already know about than take on unfamiliar options. 

For instance, a person working in the retail sector will be more likely to catch important details about retail companies than they might be for, say, an insurance firm.

This understanding can also help investors absorb market changes and respond to market trends accordingly.

You can also pursue stocks of sectors or industries that you have keen interest in, considering that it will motivate you to research and gain knowledge of that space.

For example, environment-conscious investors often closely track green power and technology stocks that can significantly grow in future.

2.    Identifying the distinguishing factor

When a particular company distinguishes itself from its peers and business rivals in the eyes of the customers with its products, operation efficiencies, etc., it is believed to have competitive advantages.

Companies exhibiting such qualities can be a healthy investment option as they can defend their market share from other entities.

3.    Noting key metrics

Key metrics can say a lot about a company. For instance, a firm’s price-to-earnings ratio can indicate whether the stock at its current price is undervalued, rightly valued or overvalued.

Similarly, there are other ratios like price-to-earnings-growth (PEG), price-to-sales (PSR), price-to-book (P/B), etc which each can say different things about a company’s health.

4.    Past performance of a company

Although a firm’s past cannot solidify what happens in its future, historical performances can shine a light on how an enterprise has weathered through good and tough times.

Noting a company's performance, especially during economic shocks and downturns in the past, can indicate its capabilities to withstand unfavourable market situations if one were to come in the future.

5.    Diversifying your investment portfolio

After conducting a detailed research and analysis, investors are generally suggested to diversify their stocks.

Diversifying your stock investment portfolio based on the industries or sectors can help you spread out your funds in balanced ratios, which, in turn, will diversify your risk.

Diversification is an essential element to consider while investing because as different sectors and industries react differently to a market situation, it can help you in minimizing your losses.

6.    Staying updated with market trends

Staying updated with market conditions is one of the crucial factors that can help you make well-informed investment decisions.

A new government policy, a new sector-oriented regulation, or a key corporate update can differently and significantly influence a business.

Such vital developments can impact market performances and help investors decide whether to enter or exit a particular space.

Also read: Which Chinese stocks to buy as we enter 2022?

Bottom line

Investors should systematically research and analyze a company, its key metrics, past and present performances in addition to the ever-changing market situations to ensure that their investment portfolio is in good health.