Whenever possible, purchase stocks through direct company...eliminate the middle man (stock broker)
For heavens sake, please have a diversified portfolio
Listen...there is no such thing as a hot tip on a stock thats ready to explode
Do your homework
Purchase stocks from sound companies for no more than $50.00 (when possible)
Four magic principles
1. Look for low P/E stocks
The Price to Earnings ratio tells us the price you are willing to pay for every rupee you may earn in the future.
In mathematical terms, P/E is the market price divided by the Earnings Per Share.
EPS = Net profit / Number of shares
P/E = Market price/ EPS
2. Growth story
Look at the past. If the industry was growing at 10% per annum, what was the company's growth in terms of the earnings? Compare the two. Was it the same or was it higher? If it was lower, you have to think again.
3. Asset backing
Look at the type of assets -- both tangible and non-tangible -- that the company possesses.
(a)Tangible assets are the ones the company has in physical form: land, buildings, machinery, investment and cash.
(b)Intangible assets are those that cannot be touched or seen. Examples include the company's goodwill and its brand name.
4. A good trading outlook
You have to consider the liquidity of the stock before investing.
(a)A company might have a low P/E, high growth rate, good asset backing, but if it is not traded regularly on the exchange, then it is very tough for you to dispose it at a fair value at any given point of time.
(b)It's a simple question of demand and supply. When demand is greater than supply, the price of the stock increases. When demand is less than supply, the price drops.
EXAMPLES: Below are stocks from outstanding corporations that pay dividends. Bank of America pays a nice 0.64 a share.