best strategy to pick a winning long term stock share investment || complete guide of fundamental analysis

Best strategy to pick a winning long term stock share investment

a complete guide of fundamental analysis for long term

"The economy always grows in the long run." Warren Buffett's statements acknowledge that short-term bear cycles are not as important when looking at the big picture of the economy, but it is also true that not every stock or company grows in lockstep with the economy. There are numerous stocks in each sector to invest in or avoid investing in. The choice of stocks to invest in from each individual sector like banking and finance, infrastructure, pharmaceuticals, technology, etc. is always a matter of research, and investors look for various key factors to keep in mind while picking stocks for the long term. Long-term investing is basic and simple but requires the right guidance.

By the end of this blog, you will understand everything there is to know about long-term stock investing while keeping all of the stock market's key factors and fundamentals in mind. You will be equipped with all the skills and factors required for long-term investment.

This post was created by analyzing various books written by Warren Buffet and other legendary writers, as well as Chua I-Min's globally famous courses. We also conducted research on all stocks that provided the best ROI in the previous decade and created a detailed report on which factors we would have chosen if we were doing it today instead of ten years ago.

To know whether a stock is good for the long term, one must analyze its market share, fundamentals, and innovation for future projections. Companies that rise after the market breaks or falls demonstrate that they have strong market research and innovation capabilities, as well as the largest market share in their respective industries, making them more likely to succeed in the long run.

Here are some detailed points for picking a winning long term stock investment.

• COMPANY STOCK PRICE IN RELATION TO EARNINGS PER SHARE (P/E RATIO)

The P/E Ratio is a useful tool or formula for determining actual value or analyzing a company's performance in relation to its industry by using the company's earnings and valuation as references.

As is well known, a company's value cannot be determined solely by its share price. MRF's share price of 92,000 Indian rupees does not imply that it is the best company on the Indian stock market, because share price is determined by the number of shares and the valuation.

formula used to find the price-to-earning ratio

P/E ratio = current stock price / earning per share

For example, assuming Reliance Industries' shares have a price of INR 2700 and earnings per share of INR 100, then the price-to-earnings ratio should be

P/E ratio of reliance =2700/100

=27

The P/E ratio is compared with the general P/E ratio of that specific industry or sector.

So, if the P/E ratio is higher than the sector's P/E ratio, it is more likely to be a good pick because the market has high expectations for that company; however, it may be an overvaluation. If the P/E ratio is lower than the sector's standard P/E ratio, it is generally not a good pick; however, you can still consider buying it if the company has strong fundamentals.

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• CURRENT RATIO 

Just like any publicly listed company has to pay its liabilities with the assets and profit earned, the ratio of the value of short-term assets to short-term liabilities is termed as current ratio . If a business does not have enough short-term assets to cover its short-term liabilities, it will have to sell its fixed assets in order to operate. The current ratio of 2:1 is considered ideal.

CURRENT RATIO= SHORT TERM ASSETS / SHORT TERM LIABLITIES

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• RETURN ON EQUITY PERCENTAGE

The calculation of net income earned by shareholders in percentage is called the "return on equity percentage." ,It simply means money earned by businesses for shareholders.

Return on equity percentage = (company's net profit/share capital) x 100

Generally, ROE% between 13 to 18% is ideal; however, it depends on various other factors.

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• DEBT TO EQUITY RATIO (D/E RATIO)

In simple words debt to equity ratio is tool to evaluate financial leverage of company by dividing total debt of company with shareholders equity , here shareholders equity is total assets of company - total equity of company . Here interest rate of debt is fixed.

(D/E) RATIO= TOTAL BORROWED MONEY / TOTAL SHAREHOLDER EQUITY

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• SIMPLE MOVING AVERAGE

This can be said to be one of most important things to keep in mind while picking stocks for long-term investment .Simple moving average is the average of the close price of any stock, currency, cryptocurrency, commodity, or security over a specific period of time.
Simple moving average is calculated by dividing the addition of the closing price of stock in a specific period by the number of periods.

SMA = (cp1+cp2+cp3+cp4+cp5) ÷ p

simple moving average of infosys stock

simple moving average of 200 days is taken in reference to long term investment. SMA50, SMA100, SMA200, and so on are averages of 50, 100, and 200. There are five main possibilities if a stock's price is less than its 200-day simple moving average.
1: There is a significant risk with the company's financials.
2: There is an economic disruption.
3: The stock market is fraught with danger.
4: The company or stock is undervalued.
5: The company or stock is oversold.

So it is not a better idea to invest in stocks if their 200-day SMA is above their price, except if the stock is undervalued or oversold.

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• CONCLUSION

Technicals like the PE ratio , ROE percentage, CURRENT ratio , debt-to-equity ratio, and simple moving average are great tools to evaluate and forecast the future of any stock or company. Although we have to use all of the above in the right proportions, Every stock or share technical analysis tool uses current available data to evaluate or analyze, but in the end, all of them are indicators based on mathematical calculation . Any possibility cannot be predicted with 100 percent certainty. THERE ARE NO MYSTICAL INDICATORS OR TOOLS THAT PREDICT THE FUTURE. The market is powerful enough to prove any investor or technical expert correct or incorrect.

 

this blog was all about technical analysis for long term investment , bookmark www.economybridge.com to stay updated in finance and money