Share trading does seem to be a very lucrative and profitable venture but when it comes to picking up good shares and stocks, it becomes very challenging. No doubt, you can diversify your portfolio and can increase your net worth manifolds but it all requires thorough research and smart decision making.
Following are some tips for selecting good shares so that the process is bit simpler for you.

Ploughback
There are two parts in which the company’s profits are split: one is dividend that is shared among the stake holders and the second is ploughback i.e. the money kept by the company to invest it further for its growth. You can find these figures in normal balance sheet inspection of the company. The company who wants to expand and has long term vision in mind keeps good amount of money as ploughback. On the other hand, the company which is not focussing on the future keeps little for further investment. Therefore go for the stock that shows promise of future.

Your investment preference
Decide whether you are looking for a long term investment or short term gain. The companies that belong to the hottest and in-demand niche are quite profitable to invest in, but make sure to buy such stocks when the rates are low otherwise you won’t get any immediate profits. Good shares for long term investment are those that have earned a name in different sectors despite the highs and lows in the niche.

Do not follow advices as laws
If a stock has worked for your friend or is a broker’s recommendation, it is not a sure shot recipe of success. You should do your homework and analysis and remember your instincts. Make sure you don’t gamble your hard earned money just because somebody tipped it.

Price-earnings ratio
Although price-earnings ratio is a good indicator of investment, it needs to be used along with other technical analysis before making any decision. Use P/E ratio in context with the overall picture of the stock you are considering.
Always follow a strategy and go with it. Though there are exceptions to every bit of advice offered, these tips on selecting good shares will guide you towards the right path.

Tags: building wealth, tips for selecting good shares

This entry was posted on Tuesday, March 23rd, 2010 at 9:00 am and is filed under share trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.