Stocks

Picking good stocks means you are buying a unit of a good company. A good investor always chooses stocks of good companies. However, the crux of the matter is how you will identify if stocks belonging to a particular company will do well in future or not. For instance, a company named A is doing very well now. Is there any guarantee that A will be performing consistently in near future? It is very difficult to establish such facts. A company may be doing very well today but investing in its stocks may not be a very good option 5 years from now.

Competitive advantage There is one way you can find out if stocks of a particular company can be picked up by seeing its Competitive advantage. A company is said to have Competitive advantage over others when it enjoys an edge over its competitors and generates more value for itself as well as its shareholders.

Let’s say company A has a Competitive advantage over its competitors due to the following reasons.

1. The company has as many as 5000 plus stores
2. Buying power of the company is very high
3. It has a tremendous capacity to negotiate favorable deals with its suppliers.
4. Since it has got a number of outlets in different cities, exposure to advertisements is also very high

Hence company A‘s position in the market is at number 1. So, Company A is practically unapproachable. However, there is no guarantee that the market leader will remain the same 15 years from now. There may be several factors that may hinder its progress. So, the best way to invest in stocks is to keep your long term goal in mind.

Is it right to buy stocks when markets are down? When there is a downturn in the market, you will find that few stocks have been hit real hard and they are referred to as damaged stocks. Stocks are said to be damaged when market conditions have hit them so hard that they take a long period to restore their original position in the stock market.

Amidst so much uncertainty, the best way to decide is to see how much a company stock falls as compared to the companies operating in the same industry.