Recommended for stock investment beginners! How to choose a stock
“Let’s start investing in stocks!”-I think some of you may have decided to do so this summer. However, even if you are going to buy stocks, many people may be wondering what kind of stock to choose.
This time, we will introduce “How to select stocks” for those who want to start investing in stocks. I am very happy if the stock price of the company I discovered and invested in goes up and I get a dividend. In addition, a virtuous cycle will be created in which stock investment will become even better as you gain more investment experience.
How to choose stocks for beginners
Step 1: Let’s search for familiar stocks
There are about 3,500 listed companies (brands) in Japan. In addition, the Internet, newspapers and magazines are full of “promising stocks” and “recommended stocks”.
It seems easy and difficult to select a stock to invest based on this information. Also, even if information on promising stocks arrives at you, many investors may have already obtained that information and started investing. Stocks are products whose price goes up as the number of people who want to buy them increases. It is often said that it was not profitable as a result of buying it in a hurry even though it became popular and the price was not profitable. If you are a company you don’t know in the first place and you can’t imagine the business content or industry environment, you’re just relying on information and you can’t judge for yourself.
With that in mind, there are many benefits to focusing on a company close to you. First of all, since it is a familiar company, you can delve into the attractiveness of the company for yourself. If it’s a store, just talking to the clerk will give you hints on how to invest. You can also regularly check the company’s products and services for any changes.
The information and knowledge that we have obtained in this way will be a valuable source of investment decisions that we cannot rely on for information from others. You should be able to make confident buying and selling decisions even when the stock price goes up or down significantly.
First of all, let’s find a brand that is familiar and interesting. For example, do you have a company that makes your favorite products, transportation that you use often, shops that shop well, restaurants that your family likes?
Step 2: Get an overview and performance of the company you care about
If you find a company (brand) that interests you, check the company’s outline and performance figures on the securities company’s website. The points are “scale (sales and number of employees)”, “profit (profit)”, “does not have a lot of borrowing (equity ratio)”, etc.
Here, avoid companies that are in the red and are not profitable, or companies that are not profitable and have a high risk of bankruptcy, such as having a lot of debt.
Step 3: Imagine how many times your company’s profits will increase
Next, if the product or service that you are paying attention to becomes popular and popular, imagine how much the sales and profits of the company as a whole will change. At first, you don’t have to worry too much about practicing. First of all, it is a good idea to think about it with reference to companies that actually have big hit foods and games.
The important thing is to have a perspective on whether the products and services that you pay attention to can greatly improve the performance of the company. If I could meet a company (brand) that could double or triple the sales and profits of the entire company.
It may seem difficult, but it is a very important step in the process for beginners to master equity investment. Please do your best.
Step 4: Check the stock price
If you think your company is likely to grow, check the stock price and the amount you need to invest. The minimum amount required to purchase shares can be calculated by “stock price x number of shares per unit (whether you can buy from 100 shares or 1,000 shares)”. If the stock price is 500 yen and the number of shares per unit is 100, the minimum investment amount is 50,000 yen. Make sure the stock fits your budget.
Step 5: Make an investment decision
It is finally an investment decision. Let’s check the index to see whether the stock price is overpriced or undervalued. The index I want to keep in mind is “PER (Price Earnings Ratio)”.
PER is calculated by (stock price) ÷ (earnings per share), and you can see “how many times (years) the current stock price is the annual earnings per share”. The market average is about 15 to 20 times, although it depends on the industry and growth potential. If it is more than that, it will be expensive, and if it is less than that, it will be cheap.
Once you have a grasp of the current PER, you will make an “investment decision” as to whether or not to buy stocks, while imagining future profit growth that you have considered earlier.
For example, suppose the company you are looking at has a current stock price of JPY 1,000 and earnings per share of JPY 50. If you think that the company’s earnings per share will double (100 yen) in the future, how will the PER change if the stock price does not change?
The current PER is 1,000 yen ÷ 50 yen = 20 (double), but the future PER will be 1,000 yen ÷ 100 yen = 10 (double), which is lower than the average of 15 to 20 times. Therefore, this stock is cheap and we can expect the stock price to rise as the performance grows.
Once you get used to it, it will be helpful to check the past PER trends of the company and the PER of similar companies. This information can be a valuable source of investment decisions. You should be able to make your own decisions even when stock prices move significantly.
Take time to look up the stock once a week for 30 minutes
It may seem a little difficult, but it only needs to be understood, so try this process once a week for about 30 minutes. If you look up about 10 stocks, you will come across a stock that comes to mind when business performance is likely to grow, or a stock that you want to buy. Please continue for a while with a spirit of familiarity rather than learning.
How to collect information
In order to find a brand that is familiar to you, it is useful to keep an antenna on what products and services are popular in your family, relatives, workplace, etc., as well as your own information and knowledge. If you notice it, ask the person who uses it for the reason.
You can also refer to the recommended information on the internet site of the securities company. For example, at Daiwa Securities, opening a securities account allows you to read reports written by professional securities analysts and collect information, which is a great service for individual investors. It is also a good idea to cultivate your knowledge through online seminars. In principle, there is no account opening fee, so please take advantage of it.