The 6 keys to keep in mind to buy shares


The methodology to follow when analyzing investment opportunities to incorporate stocks into our portfolio will determine its evolution. Although not for this reason, market fluctuations can affect daily valuation and profitability, but if we follow a few simple steps we can minimize risk and achieve our investment objectives.

The most important aspects that we must take into account to buy shares are:

1. Time

Within the investment universe in which we have a certain number of shares (for example any stock index: Ibex 35, Eurostoxx 50, Nasdaq 100, IPC) or for example by Sectors within that investment universe, we will have a series of shares that we will have to put a note based on our temporary investment preferences.

If our objectives are to keep the stock within a certain time horizon, then we will put a grade (for example from 1 to 5), with 5 being the maximum score that we will give to each of the actions that have expected performance during that time horizon. in line with our objectives.

The expected return can be measured with historical series (remember that we will have to obtain them from the daily prices and there obtain the percentage variation), they can also be measured by the dividend yield. At this point, it is necessary to study and analyze the economic context where the company is located, there are sectors (for example, banking in Europe) where the Bank in question may pay a good dividend but higher capital requirements are expected and it is possible that in the future they cannot continue to support that investor base because they have to reduce the dividend.

2. Security

Within this point, we highlight the combination between financial strength and its volatility (risk). Depending on the type of investor and our ability to withstand market fluctuations, we will choose stocks with a certain volatility.

To do this, we will follow the same procedure as in Time, but in this case we will give a score of 1 to the actions with the highest risk (unfavorable for our investor profile) and a 5 to the actions most favorable to our profile, and that comply with our objectives.

It should be noted that our objectives (which may vary for each investor) are one of the most important aspects when choosing a stock. In this case, let's imagine that we want to invest with a one-year time horizon to pay for our child's studies, or buy a certain item, and we have chosen a stock with a lot of volatility, then when the time comes it may be that we are losing money for a certain market movement, and therefore that we have not met our objectives.

As a recommendation, regardless of the investor profile (even the most aggressive), all those stocks with a score of 4 or 5, we should not add them to our portfolio for safety reasons.

3. Potential

At this point, it is important to compare the potential of the company with a certain time horizon with the benchmark (choose the benchmark correctly, if we are valuing a share that is listed on the New York Stock Exchange, we will not be able to choose the Eurostoxx as a benchmark, if not the S&P 500). To do this, we must average the highest and lowest value of the time horizon of both the company and the benchmark.

4. Consistency

To do this, we will analyze the annual ratios that show information on changes in income, net profit, cash flows, in recent years and also projections for future years (usually between three and five years). Analyzing the financial statements, we will know how it has grown in recent years and if the growth estimates are good.

At this point, we will know the consistency of the results, or failing that if they have a large variation over time.

To establish whether the growth of a company is strong, it should normally present growth of at least 10% per year, so we should think about buying this stock. On the other hand, if the growth ratio has also been consistent without great variations, it will be one more reason to buy the share and add it to our portfolio, even without the ratio exceeding 10%.

5. Analysis

It is important before buying a share, to know the situation of the sector. For this we must not forget that there are many analysts who provide the market with analysis reports that help us to put ourselves in the situation, commenting on the most important factors that affect a certain industry, of events that can negatively and positively affect the value of the share. , profits or industry earnings projection.

6. Diversification

This point will be important if we have more than one share in our portfolio. The theory recommends having a minimum of 5 stocks with a low correlation (less than 0.5) for diversification to take effect and the set of stocks in our portfolio have a lower risk than the risk that each of them have separately.

To do this, we must avoid buying shares in the same sectors or industries, following the example of the banking system, we should not have in our portfolio shares of two banks (for example, BBVA and Banco Santander).

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