If you’re ready to buy Starbucks stock on the stock market, but aren’t sure about the first steps to take when investing in stocks, you’ve come to the right place. In this article we explain everything you should take into account before buying shares.
Taking your money and putting it into different investment vehicles may seem easy. But if you want to be a successful investor, it can be very difficult. Many retail investors, those who are not investment professionals, lose money every year. There can be a variety of reasons, but there is one that every investor with a career outside of the stock market understands: They don’t have time to research a large number of stocks, and they don’t have a research team to help with that monumental task.
So the moral of the story is that if you don’t do enough research, you’ll end up racking up losses. That’s the bad new. The good news is that you can reduce your losses, as well as the amount of research you need to do, by looking at a few key investing factors. Learn more about key factors to check before buying a stock below.
Key Factors to Check Before Buying a Stock
When you decide to buy shares of a company for investment purposes, it is important to do your homework as you are investing your hard-earned money in it. Your goal should be to find good value, especially when you buy long-term stocks.
But before you put all your faith in a company, you should do some extensive research, analyze the fundamentals of the stock, and check to see if that stock is a good fit for your portfolio before buying a stock.
You’re not just buying a stock, you’re becoming a shareholder in that company, so as an investor you need to do the proper research.
Here are some key factors to know about a company before you buy a stock and invest your hard-earned money.
First of all, you need to decide the time horizon before buying a stock as it plays a crucial role in the decision to buy that stock or not. Your investment time horizon can be short, medium or long term, depending on your financial goals.
- Short-Term: A short-term time horizon is any investment you plan to own for a year or less. If you plan to buy a stock and hold it for less than a year, it’s best to invest in stable, blue-chip stocks that pay dividends. Companies have a good balance sheet and there are fewer risks involved.
- Medium Term – A medium term investment is an investment that you want to hold for one year to 10 years. To invest for the medium term, you should invest in quality emerging market stocks and stocks that have a moderate level of risk.
- Long-term: Finally, long-term investments are any investment that you plan to hold for more than 10 years. These investments have time to recover if something goes wrong and can generate a significant return.
Before buying a stock, it is important to study various investment strategies and choose the one that best suits your investment style.
Below are three key types of strategies used by the most successful investors:
- Value Investing – Value investing is the type of investing in stocks that are undervalued compared to their peers in the hope of making a profit. This is the strategy that Warren Buffett uses to make big profits.
- Growth Investing – Growth Investing is the type of investment in stocks that show growth above the market in terms of income and earnings. Growth investors believe that the upward trends in these stocks will continue and create an opportunity for profit.
- Income Investing – Finally, investors should look for quality stocks that pay significant dividends. These dividends generate income that can be used or reinvested to increase earnings potential. Therefore, before you buy a stock, you should consider the strategy that is a good fit for your investment style.
Investors should check the shareholding pattern before buying a stock.
Promoters are entities that have a great influence on a company. They may have a large controlling stake in the company or hold high executive positions.
Therefore, investors should invest in those companies that have a high share of promoters, a high share of domestic institutional investors and also a high share of foreign institutional investors.
Size of the company
The size of the company you’re considering investing in plays a crucial role in how much risk you want to take to buy a stock.
Therefore, it is important to consider the size of the company compared to its risk tolerance and time horizon before buying a stock.