Many investors buy shares of companies advised by brokers, advised by financial entities, etc.
Stocks are an important ingredient in a portfolio. They do not present the diversification of an investment fund but a set of them can offer this much-needed diversification in any portfolio.
One of the advantages for the resident in the United States is the control of the income that affects the payment of taxes, particularly with capital gains and dividends.
Although many investors follow the advice and recommendation of professionals, others decide to acquire company shares following their own criteria.
This selection must have a criterion and it is never convenient to acquire a participation of a company based on rumors, impressions and recommendations of inexperienced people.
This is the danger that must always be avoided. For the independent investor I spend these ideas hoping that they will be useful. One of the fundamental characteristics is discipline, serenity and study before investing.
Impulses can always be dangerous. It is necessary to know the characteristics of the companies as much as possible before investing. When information is received from a company, many times the number of papers is immense and it is not known where to begin the analysis.
As always, you have to set goals and strategies.
For an investment in shares it is necessary to set a horizon of three to five years. In those five years the objective should be to double the original investment.
Market conditions will affect the value of the stock but the fundamentals of the company are rarely affected by the general psychology of the market.
With this original idea it is easy to understand that one of the characteristics of the investor is patience.
If an investor does not set this long horizon and his reoccupation is short term and he makes profits quickly with purchases and sales, he is somehow competing with professionals and the chances of success are small. Risk tolerance is also an important element.
If the price rises and falls cause an internal upset to the investor, it is best not to be in the market because a certain fact is that volatility will always exist in the investment world. In the selection process you have to avoid rumors and look for the fundamentals of the company.
In my opinion, the quality of the company's management is often more important than the business itself. The quality of management is seen in the company's products and services.
If someone invests for example in a restaurant chain, it is important to visit one of those restaurants and observe how everything works, the quality of the company is always reflected in the company's product.
The second aspect is financial analysis. It is good to see the balance sheets of the company, to look at the figures of the possible growth of the business.
The cash flow in the balance sheets must always be higher than the business maintenance expenses. It is also necessary to see the economic factors that present an acceptance of the business of that entity, and to see in the balance sheets the gains or losses.
If earnings have been increasing steadily in recent years this may be the sign of a right direction. Finally, and before proceeding with the purchase, it is convenient to analyze the share price.
Based on the P / E ratio it is good to see if the price is cheap or high in the current situation. In general, you should not buy a stock that has a P / E ratio higher than the average of the last five years.
After these analyzes and based on the general portfolio of the investor once the purchase has been made, vigilance should be kept for any developments in the industry or in the company itself.
