There are millions of stocks on the market, and no investor, even if they have strong funds, can buy all the stocks on the market at the same time. It is really difficult to choose stocks with low risk and high returns for investment. For small investors with limited funds, it is even more difficult to choose a good investment target among a dazzling array of stocks. Because of this, there is a lament that 'stock selection is like a beauty pageant'. However, stock selection is not without strategy, and the following methods can be considered the essence of stock selection.
1. Stock selection based on economic cycle
The market performance of stocks of companies in different industries varies greatly at different stages of the economic cycle. Some companies are extremely sensitive to the impact of economic cycle changes. When the economy is prosperous, the company's business develops rapidly and profits are extremely abundant; On the contrary, during an economic recession, its performance also significantly declines. Another type of company is not significantly affected by economic prosperity or recession. During periods of prosperity, their profits will not increase significantly, and during periods of recession, there will be no significant decrease, and they may even be better. Therefore, during periods of economic prosperity, it is best for investors to choose the former type of stocks; In times of economic downturn or recession, it is best to choose the latter type of stocks.
2. Stock selection based on company performance
Company performance is the fundamental driving force behind changes in stock prices. If a company has excellent performance, its stock price will steadily and continuously rise, otherwise it will decline. Therefore, long-term investors should primarily consider the company's performance when selecting stocks. The most important indicators for measuring a company's performance are earnings per share and its growth rate. According to the current situation of companies in China, it is generally believed that those with a post tax earnings per share of 0.8 yuan or more and an annual growth rate of 25% or more have long-term investment value.
3. Stock selection based on net asset value per share
The net asset value per share, also known as the "gold content" of a stock, is the intrinsic value of the stock. It is the equity that truly belongs to shareholders and exists in physical or cash form in the company's immediate assets. It is the internal driving force behind changes in stock prices. Normally, the net asset value per share must be higher than the face value of each stock, but usually lower than the market price of the stock, as the market price always includes investors' expectations. Under a constant market price, stocks with higher net asset value per share have greater investment value. Therefore, investors should choose stocks with high net asset value per share for investment. If the market price is lower than the net asset value per share, its investment value is extremely high. Of course, stocks with low net asset value and low market value can also be selected appropriately.
4. Select stocks based on personal circumstances
Most investors often have a preference for certain stocks, which may be due to familiarity with the company's business, ease of handling the personality of these stocks, or ease of operation, and so on. When selecting stocks based on personal circumstances, one should comprehensively consider their ability to bear financial, risk, psychological, time, knowledge, and other aspects. For example, some stocks often have large fluctuations and unpredictable changes, making them unsuitable for investors with weak resilience in these areas to choose from.
5. Select stocks based on their market performance
The net assets of stocks are the foundation of stock market performance, but the two are not completely corresponding. That is to say, stocks with high net asset values may not necessarily have good market performance, and their market prices may differ significantly from those of the same or similar stocks. Therefore, for short-term investors, how market prices fluctuate, whether their volatility is large or not, and whether their upward potential is broad or not, are also important criteria for stock selection. Generally speaking, short-term traders should choose stocks with significant upward potential or market volatility in the short term, as these stocks offer greater short-term profit opportunities.
6. Select stocks based on their price to earnings ratio
Price to earnings ratio is a comprehensive indicator, from which long-term investors can see the turning point of stock investment, while short-term investors can observe the high and low of stock prices. Generally speaking, stocks with lower P/E ratios should be chosen. But stocks with long-term low P/E ratios may not be worth choosing, as they may be inactive and not favored by most investors, and the market is always determined by public behavior, so their prices are also difficult to climb. There is no absolute standard for what level of P/E ratio stocks are worth choosing. From the current economic development and corporate growth situation in our country, a P/E ratio of around 20 is not considered high.
7. Choose stocks based on whether the stock price has advanced or not
Usually, the best two or three stocks in the same industry will have strong trends, while other stocks will struggle. The former is called the 'leadership stock', while the latter is the so-called 'sympathy stock'. Leading stocks "are also stocks with leading gains and should be the choice of investors. How to discover these 'leadership stocks'? A simple method is to measure the relative price intensity of stocks. The so-called 'relative price intensity' refers to the ratio of the price increase of a certain stock during a certain period to the price increase of the stock index or other stocks during the same period. It is generally believed that stocks with a relative price intensity above 80 have great selection value.
