What to consider before investing in stock??

Investing in a stock market is no child's play. To make a consistent and sizable profit on the market requires years of experience to back it up and consistently choosing the best stocks to invest in. Why do many stock brokers and investors lose money in the stock market? The reasons mostly are bad choices of stock, bad timing and of-course bad luck. However, it takes some consistently messed up thinking, strategy and approach to lead a stock broker and his investors to bankruptcy! The reason for stock brokers losing money is mostly a lack of stock research when investing in a company's stock. Another reason is investing based on totally baseless speculation.

Beware of stock brokers who promise you high returns with zero risks! Any good stock broker worth his salt will tell you that big returns never come without big risks. How to identify the best stock investments is a skill achieved through years of study and application of a very rare way of thinking nowadays, called good old 'common sense'.

Even after years of worldwide economics research and thousands of books being written on how to identify the best stocks to invest in, we are none the wiser and nobody has the perfect formula to select best stocks to invest in! This is because there are just too many variables involved which control the fate of a stock. It is not possible to predict with mathematical precision, which stock is the best to invest in, as the stock market developments are not totally based on logic, but on human emotions, irrational apprehensions and speculation! Therefore there is no surefire method to find the best stocks to invest in stock trading. All you can do is make your decisions based on some proven, sound, common sense based principles, and then hope for the best! Remember stock investing is all about patience.

Here I will present some fundamental characteristics and qualities, which set the best stocks to invest in, apart from the rest of the pack. Investing in a stock exchange is betting on company's performance and its always going to be tricky to predict the winners! Its all about knowing the company whose stock you are investing in.

Factors in Choosing Best Stocks to Invest

Following are the factors that you should look for, if you want to find the best stocks to invest in.

Sales Revenue

This is the total revenue that a company has made through product sales in four quarters, that is one financial year. Good sales revenue is what makes the company's stock a safe option to invest in. Sales revenue indicates demand for the company product and gives you an idea of its market share. Greater the market share, the better it is!

Company Earning

This is the total income of the company through sales, including its profits and losses. Obviously, a company putting in consistent profits, quarter after quarter and year after year is a good choice to invest in. So the key is to spot the good performers, which doesn't necessitate any financial wizardry, but a thorough perusal of company reports!

Debt to Income Ratio

In the company performance report, look for the external debt the company has. If the company has a huge income including profit, but has high debts too, you know where the profit is going to go! So look for the debt/income ratio of the company. Lesser the debt, more financially stable the company is.

Liquidity

The liquidity that is cash which the company is an important factor when you are thinking about investing in its stocks. Best stocks belong to companies with as much as 60% liquidity. By liquidity I mean hard cash and assets that can be easily liquefied. It is an indicator of solvency of the company and is a good reason to believe that the company is stable financially and therefore its stock is good enough for investment.

Total Valuation and P/E Ratio

The total valuation is the complete worth of the company. Best way to find the valuation of a company is the Price/Earnings that is P/E ratio, its stock has. It is an indicator of the amount of returns a company is giving against your investment in stock. If the P/E ratio lies between 5 and 50, then it is a good enough stock to invest.

Hope these indicators that point towards the best stock to invest will be of help when you are choosing stocks to invest. Formulate a sound stock trading strategy based on these indicators. Look out for dark horse companies that have potential, though there market capitalization may be low at that time. These dark horses sometimes turn out to be winners in the long run. Do not be conservative to the point of being blind. Look out for them!