Eight Thumb Rules You Should Never Forget For Value Stock Picking

Stock markets are as complicated or as simple as you think and act, and for that matter, a source of wealth creation on a long-term basis. For a well-informed and patient investor, it is simple and a matter of pleasure, while for an impatient player with speculative intent, the stock market is complicated and riskier. Therefore, one has to nurture one’s own judgemental skills for success in the stock market. The best thing for effective stock picking, I feel, is one’s level of conviction and patience in stock picking, devoid of undue fear and greed on the one hand and undue speculative activity on the other hand. Experts would guide you on technical or fundamental analysis of a stock, which is important for all, but suits more the high-net individuals (HNIs), institutional investors, large investors, etc. However, a beginner and a small investor require a simple, straightforward direction for picking the right stock. In this regard, some of the following points may prove helpful for value stock picking.
 
The Company’s Pedigree & Management Quality:

The first and foremost consideration in value stock picking is a company's credibility and reputation vis-a-vis its industrial group. The pedigree and the credibility of a company, or more so of a group, ushers better confidence. Nevertheless, it doesn't mean that all the companies of a group are equally successful and performing. Yet, in time, there are good chances for even a laggard company of a reputed group to perform and reward its investors. There are several such groups of immense reputation and respect, but to name a few, say, Tata and RIL group companies, as investor-friendly companies, fall in this bracket.
 
Present & Future Product Range:

A company in a sunrise sector, diversifying or planning entry into a futuristic sector, ought to get preference. For example, currently, companies in IT, Non-conventional energy sources, digitisation, artificial intelligence, Banking & Financial, the Pharma sector, consumer goods, etc., should be in focus.
 
Daily Trading Volume Of A Stock:

Day to day trading volume of a stock reflects a share's liquidity potential and the players' larger interest. Hence, it marks a genuine interest of investors or traders. Therefore, a higher sustained daily average of a stock commands interest.
 
Delivery Of A Stock: 

Day-to-day delivery of a stock is another important parameter for proper stock selection. Higher average daily stock delivery reflects an important pointer towards the right stock. Higher average daily volume and higher average delivery ought to serve as one of the most important tips in stock picking, though not the ultimate.

Earnings Per Share (EPS): 

EPS probably serves as one of the potent tools for value stock selection. This is because EPS presents a reasonable proposition of the financial condition of a stock in simple terms.

Dividend Yield Of A Stock:

Dividend yield may or may not be necessary for big investors or traders, but it ought to be an essential consideration for stock selection for small investors. This is because dividend serves as a shield against intense volatilisation in the market and offers a reasonable safety factor, along with an appreciable source of income regularly.

Keep An Eye On Traders/Market’s Favourite Stocks! 

Do keep an eye on the trader’s favorite stocks but with an open mind and not blindly. That ought to be a conscious consideration keeping the above points in mind!

Don’t Look Back, Instead Always Look Forward:

Quite often, after you have booked profit, the share may gain appreciably, which may cause regret. But one shouldn’t bother and certainly not feel tense because stock markets are highly unpredictable and uncertain, and nobody knows when the price of a stock might undergo a U-turn on either side. This implies that there is no shortage of opportunities in the stock market, and one may get another chance to buy back one’s favorite stock sooner or later. Just patience is called for. So, keep forward-looking always, and be happy.

Conclusion:

All the listed parameters are vital in their own way. Still, these may or may not prove a reliable tool individually in value stock selection. Yet, a suitable combination of these will indeed prove helpful, for a small investor or a beginner, as a dependable source of wealth creation, on a long-term basis!

(The author is a former employee of the Government of India and has worked in the agriculture sector.) 

Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.