Is it very confusing which shares to buy?
Yes……Let me help you to select your first stock in the stock market.
It is a very memorable moment when you buy your first stock in the stock market. As a beginner, we like so many stocks. We are not clear which company is better, which company will give us a good return.
Which company we should invest in. It is very hard to identify the first stock to buy.
If you have invested in the stock market you will definitely remember your first stock market investment. If you are going to invest in the stock market I hope this article helps you a lot to find your first stock.
Now we will discuss 7 tips that will help you to identify your first stock.
1. Company’s Track Record
Company track record is very important when you are going to invest in the company. Companies’ track record shows how much the companies follow their ethics.
Is the company following its norms or government norms?
You may have seen this type of news that RBI scolds this bank. These banks or companies are banned by SEBI or RBI or any other market regulators or got any type of notice.
If there are any company or bank on which any government body fines or applying any type of ban, for example, there are some banks which caught regularly because of any type of regulatory or do something wrong on the other hand if we see some banks like Kotak Mahindra Bank, HDFC Bank are sort of good banks. These banks never caught for any type of irregularity or for doing something wrong.
So if you are selecting any company for your first investment then must check that isn’t your company caught doing something wrong or get banned by any government body.
There is a very simple way to find this type of news about your company. Just type in google ‘XYZ company fraud’ or ‘XYZ company scam’
You will get the whole history of that company. Keep in mind that if you got any mistake it means there are many mistakes that didn’t get caught.
Just think have you heard this type of news like Asian Paints have facing any problem, Pidilite has some major issue due to any wrong decision, NO. Because these are quality companies.
So keep in mind that all the quality companies are always controversy-free. If there is any controversy then that company will surely face more controversy. So it is better to keep away from those types of companies.
2. Management’s Track Record
We have talked about companies’ track record, now we will talk about people who are behind the company’s real growth means we will talk about companies’ management’s track record.
At the time of investing in the company, you may have fear about the companies management, you might think that what if the owner of the company runs with you money, what if this company shuts down in the near future.
There was a company named ASHA Poora, whose owner is missing for a while and he wrote a letter to their investors and feel sorry and pardon about not managing their money well.
Will this not happen with your company, will the owner of the company or promoter in which you are invested not kept you between all the trouble.
For avoiding these types of problems only choose the companies with very reputed owners if you are a beginner in the investing field.
Will Adi Godrej runs with your money, will Ratan Tata run with your money? This is very very rare. As a beginner, it is safe for you to choose only those companies in which you listen to good things. And the whole country respects its owner. In this case, your money will save.
3. Low Debt Companies
This is another very common knowledge I want to share with you. Let’s assume you have two choices
- First is that there is a business that earns a good profit and doesn’t have any kind of debt.
- And second is that there is a business that also earns good profit but has a huge debt.
If you are becoming an owner of that company then maybe in the near future there will be some complications you have to face. And you have to pay all their debts.
Now tell me which company will you choose?
Most people choose the company which has no debt because whenever in your life there is any kind of debt then it causes you some mental tension and as a human being no one wants any tension. It doesn’t matter this is your personal life or the stock market.
SO in the stock market, you should keep away from the companies who have more debts. Because if there is any type of problem happens it will disturb your personal life as well.
There is also another aspect- companies with low debt has a low probability of being bankrupt or any type of fraud.
It also refers that as low the companies debt as high your investment.
4. Sales & Profit Growth
Before investing in any company you should also check the sales and profit growth on the money control and any other platform which you use. Both the factor is very important for any type of company.
These are the two major factors that determine the companies growth. These both the factor should increase if the only sales are increasing and profit are not increasing as much it is not a good sign. It means the company focuses on more and more sales and doesn’t pay any attention to the profit. It is very easy to increase the sale without profit. But this does not lead them to a bright future.
Now we have two perfect examples, we have two companies
- Eicher motors
- Page industries
These two companies sell their products in a huge amount but they never compromise in their profits. This is why they are able to give multi-bagger returns to their shareholders.
In the second example, there is a company in which sale is not increasing but profit is increasing. It means the demand for the product of the company is limited. If a company is selling 100 products then it will only sell 100 products only.
In this case, how can a company generate more profit in the long term? In the long term, there will be a situation when the market will be saturated. That’s why both factors should be necessary. As a beginner finding a company like this is easy and very easy to see.
5. Return on capital
See there is some business in which they have huge margins. For example, you sold 1000 rupee items and earned 200 rupees, it’s around 20% margins on that particular item.
It looks very fancy that this is a high margin business. Some people also started the same business without any other confirmation or planning. And at the end of the days, most of them get failed because of a lack of broad knowledge in that business and also without any good strategy.
But we can’t say a good business to any business only because of good margins. We have to say a good business or a bad business to a business on how much capital is required to start that business and also how much capital it needs to run it. What is the operating cost? And how much return we get on that investment because the margin is only on the sales, fixed cost is not included in that margin.
For example, if you are setting a big cement plant then there are so many costs associated with that and you will find that profit margins on how much you sold 1 packet of cement and how much you spend for that 1 packet of cement-like- Plant running cost, Labour salary, Management salary, Raw material cost.
This will be your total margin. But you have to see how much your total money is invested in the whole plant-like
- To buy raw material
- Employee salary
- In setting up the plant
- To taking license
You have to see all of these and then calculate the return. You will know this on the return on capital that How much I got a return on the total money I invested.
So for a good business, not only the net profit margins but the return on capital should also be good. This is the figure to evaluate the business that is it a good business or a bad business.
6. Customer Satisfaction
Now, this is the most important point when you are searching for a good company. Customer satisfaction is the point where most of the companies lose but all the quality companies are very much aware and pay their attention.
See for a short span of time i.e. for 1 year or 2 year any product can sell because of their marketing strategy and because that is a brand new innovative product.
But don’t be impressed in that hipe. If you want to know that will it the last longing product then you have to pay your attention to customer satisfaction.
You have to that the people who are buying that product are happy or not. Will they buy that same product again or not.
But how will you know that?
The simplest way to know this is to buy a share of those companies which products you also buy. And you are satisfied with their product. And you also recommend that product to your friends and other people.
7. Think Like An Angel Investor
This is one of the most important tips to find a quality share. Think like an angel investor when you are buying a share of any company.
Think like you are going to invest a very huge amount in the company and you are investing for a long time. Or think in a way like you are going to buy the whole company.
Let’s take an example- Assume you have 5000 crore rupees and you want to buy a company which can give you a good return. There is only one condition and that is you can buy only one company. Now you are searching for a company which you can buy in 5000 crore rupees.
So after lots of research, you finally got two companies which market cap(capitalization) is 5000 crore
- DCB Bank
- Zydus wellness
These companies’ market cap is 5000 crore it means you can buy all the shares in 5000 crores.
Now you have to see that you want to buy DCB Bank or Zydus Wellness.
Now you will think which company is earning more in the form of profit because you have to pay 5000 crore rupees for both the companies so you have to know which company is earning more.
After some more research, you find out that DCB Bank earns 250 crores in a year and Zydus Wellness earns 130 crores in a year. Now you can compare the profit of both companies.
You can think like in the future which companies profit will grow, a small bank which is growing rapidly or a company which has 2 or 3 hit products of daily use. Which company has more growth potential, Which company is in a low competition range?
Your mind will tell you which company is better after all these small calculations.
So whenever you are selecting a company make sure to see their market cap that is this company is of 1000 crore market cap or 2000 crore market cap. Then see That in the same market cap range what other options you have?
When collecting the data of at least 4-5 companies of the same market cap range.
Now think about which company you should buy if you can buy the whole company. If you got the answer from your mind… buy shares of that company.
And if you want to get the whole list of your desired market cap (like you want all the companies of the market cap of 500 crores to 1500 crore) you can easily find it from screener.in and by using a filter you can get all the companies of India in your desired range.
So these are some topics which I think will help you to find your first ever stock in the stock market. Until next time thank, you stay blessed 🙂.