Factors for Stock Investment | Five Ways to Select Stocks for Investment

Investment

When it comes to investing, we want to be cautious and thorough. But, with so many options available, how does one select which stocks are the best? How does one know if a company is high-quality? Here are five fundamental features of a business that you should think about before investing in it. In this blog, we tell you five factors for stock investment in Singapore. 

Five Factors for Stock Investment in Singapore

What is the business model of the company?

A business generates something valuable and then sells it to others for a profit. That “something” can be a physical product, such as a cell phone, or a service, such as health care. When we buy a company’s stock, we want to know about its fundamental business, such as how it makes money and how it leverages its strengths to continue growing. Mergers and acquisitions (M&As) are one way for larger organizations with spending power to buy out smaller companies, particularly those that are direct competitors or provide complementary services.

Mergers & Acquisitions

M&As, on the other hand, has taken on a new twist in recent years, particularly with internet-based enterprises. Large corporations are acquiring smaller corporations, many of which have yet to earn a profit but are regarded as having social worth due to their popularity. This method can work in some cases, but in others, these enormous corporations risk failing to turn their popularity into profits. If a corporation’s business model is based on buying the next big thing rather than creating the next big thing, then the company should be avoided.

You should invest in a firm that is not unduly reliant on acquisitions to sustain growth and has a distinct value proposition that allows it to command higher prices. Essentially, you should feel at ease locking the stock in a box and not touching it for five years, or you should be concerned about its influence on your portfolio.

What is the state of the company’s industry as a whole?

A company may be doing well, but you need also examine if the industry in which it operates is doing well. Take, for example, banks. On a daily basis, we all utilize some type of financial service, whether it’s a savings account, credit card, or loan. We have a broad banking industry in Singapore. There are three major domestic banks as well as a number of foreign banks.

The industry helps people and businesses satisfy their banking and financing needs, so we can expect it to remain around for a long time. It’s not just about picking a company to invest in; it’s also about picking an industry to invest in. The industry’s growth rate should be constant, and the industry should have promising long-term prospects. A high amount of capital expenditure indicates that it will have a competitive advantage over other industries. This is one of the five factors for stock investment in Singapore. 

How is the company’s management?

The management of a corporation is frequently what makes or breaks it. Examine how it interacts with the public, the press, consumers, and staff. After all, when you invest in a company, you are also investing in its employees. You should ask the following questions: Is the management team experienced enough to handle a company of that size? Does it have the vision and knowledge to help the company grow? Is there a proper succession plan in place at the company? If you decide to invest in a firm, you must have faith in its management. Even if a firm has a fantastic product, inadequate management can lead to its demise.

What is the best way to assess a company’s financial health?

There’s a lot more to running a business than demonstrating your ability to produce money. For example, a company may be profitable, but if it is earning less than in prior years, it should be scrutinized more seriously. On the other side, a rapid increase in earnings may not be good news! It could indicate that the company is in decline and hurriedly selling off assets to stay afloat.

Other parts of a balance sheet must be considered. The price-to-book ratio (or P/B ratio), for example, can be used to determine if a company’s stock price is overvalued or undervalued. A company’s balance sheet can disclose a lot about its financial health, as well as if it is concealing the truth about how it spends its money in good and bad times. A good business can survive even when times are tough. It is a good factor for stock investment in Singapore.

Is the corporation dedicated to you, the shareholder?

When you purchase shares in a publicly traded corporation, you become a shareholder. You’re unlikely to have any say in the day-to-day functioning of that company. However, because you have invested money in the company, it is responsible to you for how your money is used. A good corporation should have a solid ‘best practice’ governance structure, such as a board of directors to oversee the management team on your behalf, the shareholder. To avoid conflicts of interest, this board should be independent and not have any executive functions. Executive performance measures should also be aligned with the objectives of long-term shareholders.

With these five factors for stock investment in Singapore you can decide which stocks you want to put your money in. 

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