When selecting stocks, look for stocks that are suitable for buying. In fact, there are many ways to invest in stocks in the stock market, and there is no right or wrong difference. As long as you can make money, it is a good method, and as long as the chosen stock can rise, it is a good stock. There is no good or bad method, only whether it suits oneself or not.
Here are several commonly used stock selection strategies for your reference.
1、 Mid to long term stock selection
If you want to choose a stock suitable for medium to long-term investment, you must start from the fundamentals, because only the company's fundamentals can determine the value of its stock, and emotional factors, positive and negative can only bring short-term effects.
To choose long-term stocks based on fundamentals, generally four conditions need to be met:
Firstly, the industry must be one that continues to grow. Only such an industry can make the cake bigger and share it. Those sunset industries can only compete with each other for the market, which is cruel, high-pressure, and cyclical. The performance cycle fluctuates, and the stock price repeatedly rides the roller coaster.
Secondly, industry leaders, now in the future commercial society, have shown a clear "winner takes all" pattern. Leading companies have the advantages of first mover advantage and resource investment. Once they build a "moat", they can make long-term profits.
Thirdly, for companies with strong profitability and investment ability, it is best to have a gross profit margin of over 20% and a return on equity of at least 15% for five consecutive years.
Fourthly, the valuation level meets the three conditions mentioned earlier, which basically confirms that it is a good industry and a good company. However, whether it can be invested or not still requires a good price. The valuation level should not be too high, and it needs to be combined with the growth rate. The P/E ratio divided by the compound annual growth rate of net profit in the past 5 years should not exceed 2 times.
2、 Trend selection of stocks
Trend stock selection does not consider fundamentals, because companies with good fundamentals may also be undervalued for a long time, and after buying them, they may not make any money or even lose money. So trend investing is actually aimed at improving capital utilization.
Trend investing only invests in the upward trend and does not waste time. Although stocks have random fluctuations in the short term, they have coherence in the medium term. During the process of rising and falling stock prices, there is inertia in their operation, which can form trends.
If a stock continues to rise after a sideways trend, forming an upward trend, then it can be invested accordingly. Any major stock is actually a continuation of the initial listing trend. As long as it is an early investment in the formation of a trend, the risk is actually not significant.
However, it should be noted that the daily trend is not stable, and the upward trend may end just as it enters. Therefore, it is best to use the weekly or monthly trend to select stocks.
3、 Quantitative selection of stocks
There are many factors that affect the rise and fall of stocks, but the most direct factor is capital. To achieve an upward trend in stocks, buying is greater than selling. To achieve a significant increase, sustained liquidity support is needed. So stocks can be selected based on trading volume.
When a stock is in a long-term slump with low trading volume, it is usually the stage where the main force is attracting funds at a low level. When stocks suddenly show a surge in volume, it means that the stock has started to be active and there is a large amount of capital involved. The probability of stocks continuing to rise is also higher.
You can choose by turnover rate, if a stock's turnover rate suddenly exceeds 5% and remains high for three consecutive trading days. So this stock can be focused on. Once the volume is increased again after a retracement, there is often a high probability that it will continue to strengthen.
4、 Hot stock selection
Hot spot stock selection is the simplest way to select stocks, and a hot spot will appear in the stock market every once in a while. The main funds will concentrate on attacking a certain hotspot, thereby attracting retail investors to follow suit.
When a certain topic becomes a hot topic, you will find that all stocks in that sector will rise. Basically, it has nothing to do with the fundamentals and technical aspects of the company. The rise in stock prices is purely a desperate behavior of investors. As long as you have the courage, buying any stock in the sector will lead to a significant increase. But the so-called hotspots come and go in a hurry. Once the hotspot cools down, there may be a significant drop, and the risk should not be underestimated.
The above four different stock selection methods allow you to choose the investment method that suits you based on your preferences and risk tolerance.
