Investment Analysis. How To Figure It Out Yourself?

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Investment Analysis. How To Figure It Out Yourself?
Investment Analysis. How To Figure It Out Yourself?

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Earlier, we considered various options for increasing capital in the stock market. Today we will touch upon an equally important topic - investment analysis

Compilation of any investment portfolio is impossible without a careful selection of assets that will be included in it. Investment analysis has many different approaches, but in general, three methods of asset valuation can be distinguished:

Costly… The basic rule of this method is that you should not invest in company shares if it is cheaper to create a similar business. Let's take a closer look at this method. Suppose you have collected a certain amount and are faced with a choice of which stocks to buy and whether to buy them at all. There are 2 options: buy a stake in a ready-made business (stock) or create your own business from scratch. There is, of course, another option, it is not to invest money anywhere and keep it in the bank, in the literal or figurative sense of the word, but this method is counterproductive due to inflation, which eats up your capital year after year. So, suppose you are more sympathetic to a business in the field of IT-technology or biotechnology. You have to assess whether your capital is sufficient to create an enterprise or start-up of this kind. And can you create a second Google. In this case, it would be much wiser to buy shares of a ready-made successful company. It also happens that a novice investor has a fairly large capital and it is much cheaper for him to open his own restaurant than to buy McDonald’s shares.

Profitable. When evaluating assets by this method, you need to focus on what kind of profit this or that asset will bear. Suppose you decide to buy shares of a company whose quotes have been fluctuating at the same level for several years, but dividends are being paid stably. In this case, the receipt of income will be only through dividends. If the dividend yield is at the level of 5% per annum, then it is much easier to put money on a bank deposit. There is another case, the company does not pay dividends at all, but its shares are steadily and rapidly moving up. In this case, it makes sense to assess the average annual growth of the company, the prospects for further growth and decide for yourself whether you can get more than a bank deposit gives. In addition, even in this case, one should not forget about the first method of assessment. If you have enough funds to open your own business, and there is a desire to engage in this process, then it will not be superfluous to assess the estimated profitability of this business. It is not a fact that a new business will bring more profit than one that has already been debugged over the years.

Comparative… This method involves comparing similar companies. For example, based on the first two methods, you have firmly decided to buy stocks and have decided on the desired industry. In this case, an important step will be to compare the performance of the companies. Let's say you are choosing from two companies. In this case, having information about the value of the business and knowing its profitability, it is possible to calculate the investment in the shares of which will pay off faster. After all, for sure, before taking the money to the bank, you consider several different options and choose the one in which you are guaranteed a higher percentage. It is on this principle that this method is built.

I would like to remind you once again that you should not choose stocks at random or just because you know them. There is always a choice. Let me give you one example, we all know such wonderful drinks as Coca-Cola and Pepsi, the shares of both companies are on the American and St. Petersburg stock exchanges. Companies have similar businesses, but differing in performance.Thus, before deciding which stocks to add to your portfolio, it will be logical to compare the performance of The Coca-Cola Company and PepsiCo. I deliberately leave the question of which is better open. This can be considered a little hint and homework. In the end, I have no goal of advertising certain companies to you. The purpose of this series of articles is to make the investment process more transparent for novice investors.

Author: Ruslan Zabolotsky, asset manager with ten years of experience. He has a certificate of the Federal Financial Markets Service of the 1.0 series - a specialist in the financial market for brokerage, dealer activities and securities management activities

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