Case: Seth Tayab does not have any knowledge of capital markets. He has surplus funds of Rs. Two million. He wishes to invest these funds in stocks. He discusses with his friend Allama Amir. Amir gave a detailed lecture full of financial information but Seth did not understand anything. Advise Seth Tayab how he should proceed and try his luck in financial markets.
The financial markets are wide and lengthy in its knowledge. Anybody who is doing the investments in the financial market then he/she must be aware of the processes and the overall information about the stock. If someone is not aware of the processes, policies and information about the stock than he/she cannot handle or follow the right direction from investment to profitability.
To know the game of stock is the main thing in this investment portfolio management. As Seth Tayab has a surplus amount for investment in the stock but unfortunately he doesn’t know anything about the stock so he decided to take the brief introduction from his friend Amir. Amir gave a brief overview of the stock and its process but unfortunately, Seth Tayab didn’t understand anything regarding investment.
So here I wanna give suggestions to Seth Tayab that he must go practically and visit the stock and he should meet some seniors who can give him the introduction and lecture on the stock. Seth Tayab shouldn’t invest quickly without knowing anything about stock and shares. Seth Tayab should follow some seniors for a short period of time and he should discuss some major things daily about the stock.
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After some days spent at stock, he must know how to choose a company who can lead him to profitability. After interacting with the seniors of stock he should be aware that How I choose a good company. Seth Tayab should know that investing in a company is a big risk until he makes the right choices. Minimizing the risk it is important that Seth Tayab should have to do some research on the company in which he is going to invest. It looks easy for Seth Tayab but it is really tough and dangerous for many investors who fail to identify the key indicators of the company. For Seth Tayab he should identify clearly and analyze the company’s financial trends.
Seth Tayab should do research through the following ways:
1: Head of the company
The head of the company is like a pilot who is steering the company and they can either lead it to success or failure.” Seth Tayab should not go for the company who is totally dependent upon his head.” Seth Tayab should know the head of the company and the overall achievements, through these things you can easily predict the company’s financial systems.”
2 Business model
This is the concrete strategy that the company uses to increment its profits. For example, a company will fixate on offering frugal goods to beat its competitors. The second standard may prefer to sell the product at the maximum price.” Seth Tayab should do his math for the next several years, and calculate his perils for the expected economic changes. Can a business model avail a company in a recession? Can a company’s strategy avail maximize profits on an economic boom?”
3 Competitive Advantage
Seth Tayab has to see the existing strong competitors within the market and competitive advantage additionally kenned as an economic moat, this is when a business has the upper hand over its competitors.” This can be via its brand potency, technology, superior products or operating efficiency. Investing in a company with a competitive advantage will give you security and assured profit since it is hard for competitors to take the market share.”
Seth Tayab should do some research on the year basis revenue of a company in which he is going to invest.” The revenue of any company shows the strong position of a company. A good revenue indicates a good strategy for a company and it shows that the company is selling its products in a uniform way. If a company’s revenue is not strong or good than it indicates that the company is not good at strategies and selling the products.” Seth Tayab should choose a company which has been good in revenue.”
5 Net income
A net income is the company’s overall income after deduction of taxes and expenses. A net income can be viewed by its income statement.” Seth Tayab should see that the good income can lead to good coming years of a company.” A business with growing net income shows it has control to ita operating costs.” A good company’s income shows how easily they can sell its services and products and it has a strong customer base. A company with strong income shows a good position in the market.”
6 debt to equity ratio
Seth Tayab should be aware of the debt ratio of the company whether he is good at debt or not.” A company who has not a debt is a strong company at the present time.” The lower is debt to equity ratio of a company, the safer it is to invest in it.”
So above these are the tips for Seth Tayab to follow and invest in the stock. We have seen poorly performing companies rise unexpectedly and well-performing companies deteriorate. So the investment is basically dependent on research and luck.
The Author is Business Student at Quaid-e-Azam University, Islamabad
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