When it comes to stock market investment, choosing from a plethora of long term investment stocks can be a tricky task. There are literally tons of stocks available for retail investors to choose from. If you check the NSE 500, there are 18 various sectors with multiple companies belonging to each of these sectors. Most investors choose an industry beforehand and try to invest in some specific industry leaders that have potential to grow.
Let’s see in detail what are the important things one should consider for long term investing and how one can follow an easy rule-based approach to pick top stocks from every sector and make their investments worthwhile.
How to Identify Best stocks for the long run?
If you want to create a long term portfolio, the primary aim should not be to make higher returns, because higher returns are proportional to higher volatility as well and that’s a risk. Returns demand for a specific risk, and this is where most of the investors get demotivated after seeing their capital getting drained during the unstable market.
So, one should always aim for companies that provide substantial returns with risk not surpassing our average returns. For instance, If your returns are 20%, you should not face the risk of a maximum of 20 to 30% to achieve this 20% returns. how much an investor is risking to make returns matters the most.
The next question is what are the industries that can provide substantial returns for long term investment? Starting from Automobiles to consumer goods, it is not possible to scrutinize each and every sector for the best companies. This takes to the point that one should always select the sector that is of your interest. For example, if you are inclined towards the consumer goods sector, you can check the past performance history of any renowned company like Hindustan Unilever ltd share. It will help you to map with other industries as well and because you have a preexisting interest in the consumer goods sector, that wish is also fulfilled.
Points to keep in mind before choosing the best long terms stocks
Do not seek random advice
Don’t just blindly follow that friend of yours who has just started investing and has made a profit. Never accept a stock tip as a piece of legit valid information. Always do your own research and study on any particular company, before investing your hard-earned money. While some tips might work out but there is a possibility that they might also get you to lose, long term success requires deep research and study before investments.
Don’t be too Greedy
Short term movements can make you panic; we have to understand that, it’s smarter to follow its huge picture direction down the road. Believe in an organizationʹs bigger story, and don’t get panicked by short-term volatility.
Active traders utilize each and every minute’s fluctuations to secure gains. On the other hand, long-term investors succeed based on the timeframes enduring years or more.
Personality based stocks
If you are seeking the answer to buy the best stocks to buy for long term growth, your personality type plays a very vital part in the types of stock you trade. For example, if you are 24 years old, and you take an interest in consumer goods companies, not sure what to buy. In this case, just go through the things that are used on a daily basis and the demand for those products is not coming down anytime sooner. One such example is the Colgate share price, which can be checked if you want to invest in the long term investment stocks of the consumer goods industry.
Investing in long term stocks demands a lot of action to stay focused. On the other hand, if you are 60+ years old, and like to think things through before reaching any decision, then maybe swing trading low volatility stocks might be suitable for you. However, it’s your hard-earned money and whatever decision you make, be sure to conduct due diligence before. You should instill an important point in mind that stocks have different levels of volatility and pace of price movement. One needs to be very active to get substantial returns on their investment.
Risk Management
One should always keep risk management while choosing stocks. Before opting for long term investment, determine what degree of risk you can live with and afford. Focus on developing a stock-picking strategy that can provide you with returns without compromising on risk level. All in all, the most important objective should be to preserve your capital. Whatever happens, just keep investing and stay in the game. Eventually, you will get to know about the risk level you can afford. Once you have achieved that, the money-making process won’t seem an uphill battle to you.
P/E Ratio
Do ensure to check P/E ration before investing in any kind of stocks. P/E ratio is the Price-to-Earnings ratio is defined as the ratio of a company’s share price to the company’s earnings per share. A low P/E ratio is usually considered as a good indicator before making an investment in a particular company. But be careful as an extremely low ratio like 5 or less is a bad sign. Also, the P/E ratio of a stock must be less than the industry’s P/E ratio.
On a closing note
Once you have decided to become a long-term stock investor, you’ll need to choose some investment strategies based on your risk tolerance and financial objective. Finally, before you opt to make a long-term investment, you must keep in mind that while these investments have their benefits there are drawbacks of limited liquidity and increased business risk too.
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