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Best Stock Pick Strategy
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Using Top-Down Approach Investing Style
Want to invest in stock?
Still not sure where to start?
What is the first step?
No worries.
Follow these 3 simple steps.
I'll share with you some of the methods most commonly used by stock analyst. In this article, I'll write on picking stocks with top down approach.
Best Stock Pick Strategy Step 1: Research Economy
As you know, stock price is driven by market sentiment. No matter how strong the company is, it will get affected by economic turmoil. Thus, it is a wise decision to consider how the economy is doing in the first place.
And most importantly, how it will affect you!
But, how to know if the economy is doing well?
There are various ways to do just that. Firstly, pay attention to business news and understand how most business owners is doing currently. Are they making lots of money? How "China Effect" affect them? And what they expect to happen 3, 6, 9 or 12 months down the road?
Bottom line, are they happy with their businesses?
Secondly, read other people's opinion on existing economic condition. What they think about the credit shortage? or, What they gonna do if country undergoing recession? Fortunately, Internet made these things possible. You can read blogs, articles or video taking about our economy.
Best Stock Pick Strategy Step 2: Analyze Market
Our stock market consist of several sectors. There are Energy, Financial, Services and Transportation to name few. Furthermore, there are sub categories under each market sectors.For example, there are Consumer Financial Services, Investment Services and Regional Banks under Financial segment. For detail, refer to either Yahoo! Finance or Google Finance for a complete list.
What market sectors will tell you?
At any given time, they will always be gainers and losers. How much the stocks had gained for the day will indicate which company favour the most by investors. And if most of the gainers come from specific sectors, it shows that there is a bull market in certain market segment.
The market sectors can either follow or complement each other.
For example, Construction will move in tandem with Financial sector most of the time. Basically, if the financial sector is doing well from strong consumer expenditure, basic material related companies can sell more goods. On the other hand, if the energy price increases, transportation companies will feel the heat. That is why Transportation is usually inversely proportional with Energy sector.
Best Stock Pick Strategy Step 3: Select Stocks
You can pick which stock to buy using fundamental analysis or technical analysis. However, combining both methods is the best thing to do.But, how to start?
Well, look for fundamental values first. How the business is doing? and, How profitable are they? Return on Equity (ROE), Earnings Per Share Growth Rate (EPSGR) and Debt to Equity Ratio (D/E) are always the best screening criteria.However, that is only for quantitative value.
You still need to research on the qualitative values as well. How the company makes money? What is the stock's income stream? What is the prospect of making more profits in the next 5 years? Basically, you have to understand its business model.
You might need stock trading chart to do the job.
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