With the global economy experiencing a downturn and negative interest policies being implemented by many countries, investing in the stock market may be a favorable choice. Some people believe that investing in stocks does not generate profits. However, if one avoids excessive greed and makes informed decisions by selecting the right industry, company, and timing, making money in the stock market can be less challenging than anticipated.
Choosing the Right Industry
Understanding the cyclical nature of economic operations is crucial. During an upward economic cycle, it is akin to being in an elevator going up. Whether one is standing or sitting, they are ascending with the lift. Similarly, stock speculation requires an understanding of the underlying logic of economic operations and making long-term trend judgments. This forms the foundation for identifying the right industry. Just as the economy has cycles, industries also go through their own cycles. It is essential to comprehend the development environment, operational logic, competition pattern, profit situation, recent growth rate, current valuation, and other aspects of the industry.
Identifying the Right Company
Once the industry is identified, analyzing different companies within the same sector is necessary to find high-quality stocks. It is important to note that there can be poorly performing companies even within promising sectors. There are two perspectives to consider when choosing the right stocks. Firstly, a qualitative analysis should be conducted by combining various information and data. This involves gaining a comprehensive understanding of the company’s operations, business philosophy, and external environment. Secondly, quantitative analysis through the examination of financial statements is essential. Apart from comprehending the balance sheet, profit statement, and cash flow statement, it is crucial to integrate these indicators and decipher the secrets behind the company’s operations.
Buying at an Opportune Price
Even if a stock belongs to the right industry, its price will not consistently rise in a straight line but rather experience fluctuations. Therefore, it is important to choose the right time to buy. Valuation indicators can be utilized to assess whether the current price is expensive or cheap relative to its value. Historical valuation comparisons can be made vertically, and the stock can also be compared horizontally with other stocks using metrics such as the P/E ratio and P/N ratio.
By understanding these three fundamental principles and adopting a balanced mindset, steady profits can be achieved in the stock market.