What Criteria Are Used to Invest in Share?

Z. Hasan: In Bangladesh, almost 35,00,000 individual and institutional investors engaged in share business. But all are not well educated regarding share business. Some of them are good analyst, while others are the followers of rumor.
As an investor, one can invest by purchasing shares in individual companies or by purchasing shares of mutual funds that invest in stocks. Some investors like to set up regular monthly investments while others prefer to make investments occasionally. Buying is simple, but you need to continually educate yourself and stay on top of your investments.
Although the stock market can seem random at times, there is a science behind making good investment decisions. Professional investors look at a few key sets of criteria to determine whether to invest in a stock. By understanding how this process works, you’ll be able to make more informed decisions for your own portfolio.
Followings are the criteria that should be considered to invest in Share:
1. Educate Yourself
Before you dive head first onto share market (i.e. DSE or CSE) it is imperative that you understand what you’re getting yourself into. Read up on how the markets work in general and about specific investments. You need to know the risks involved, and you must identify your investment goals. All instruments are not share in Share market. In Dhaka stock exchange, shares, corporate and Treasury Bonds and Mutual Funds are traded. Investor must know the last day closing price, today’s high and low price, volume of trade in quantity and amount, any notice given or upcoming etc.
2. Value
One way to make money in stocks is by investing for value. This means to look for companies that have low share prices relative to what they are earning. A common way to measure this is by looking at a company’s price-to-earnings ratio, or P/E. If it is low relative to its competitors’ P/E, there is a good chance the stock is underpriced. This often happens because investors overreacted to bad news and sold off too many shares. Value investors buy stock in these underpriced companies in the hopes that they’ll return to their normal price level.
3. Growth
Growth investors have a different set of criteria for picking stocks. Instead of looking for companies with good earnings today, they look for companies with good prospects for the future. These growth companies are usually newer and don’t have a big market share yet. This gives these stocks a chance for huge gains. Growth investors study long-term industry trends to try to predict the next big breakthrough. They want to get into these investments before others discover them and push up prices.
4. Price Trends
You can also base your stock decisions on a stock’s past price movements. Some investors think that a stock’s past movements can influence its future price, usually through momentum. When a stock is growing in value, new investors will want to buy in, keeping the trend going upward. When a stock loses value that can create a sell-off that further lowers its price. These investors are called chartists because they study a stock’s pricing graph instead of looking at its financial statements.
5. Economic Indicators
Lastly, investors look at economic factors for their investment decisions. Because the stock market tends to follow the economy as a whole, investors want to know whether the economy is strong or weak. Investors can look at the trends in a country’s growth in gross domestic product and its employment numbers to see in which direction the economy is going.
Inflation is also very important for stock investing. When inflation is high, stock prices tend to fall. By studying these economic indicators, investors can decide whether to keep investing in stocks or to move into safer investments.
Besides the above, category of shares, like A, B, N, Z is one of the key factor to be considered in share market. Tolerance of bearing risk is another factor to be engaged in share business. Moreover, he is a good investor in share business who is not influence by the rumor.
Finally, don’t invest all your money in a single day. You must hold some working capital. Don’t invest in a single company share, make a good portfolio. You must have the capacity to tolerate the market risk. You can also divide a part of your investment in short term and the other portion in long term.
Z. Hasan, University Teacher, Columnist & Researcher