If you are on a journey in the stock market you must be exhilarated with all the news of people making millions through this surrounding you, but there’s no denying that it involves immense risks as well. So, to make sure that you are putting your hard-earned money in all the right places, we have curated a list of the five most important questions that you should ask before investing in a company’s stock.
Question 1: What Products/Services Does The Company Sell?
Before you invest in a company, you should first google the revenue sources of the company. However, your search should not end there. While investing in stock, we advise you to perform thorough research, and thus you should also look up the best-selling products or services of the company. Along with it, you should also google the size of the company’s target market and check if it’s a booming or dying industry.
After that, your next query should be about the company’s rival. This step is extremely important as it will give you an idea about the market size and also your target company’s position in the market. You should also google about the competitor’s next launches and initiatives to understand if they’re planning to drop a superior market that may jeopardize the position of the company you want to invest in.
Question 2: Is the Company Actually Growing?
You should always search if the company is “actually” growing or if it just seems like so? The recent fall down of the billion-dollar Indian startup Byju’s should be an eye-opener for you. The company’s founder and CEO has been accused of fabricating growth reports to attract investors. Here’s a detailed breakdown of the rise and fall of Byju’s.
This incident tells us that even though a key indicator of a company’s success is a stable or accelerating rise in its revenue or customer base, you should always check its financial statements, especially the annual and audit reports.
Question 3: How Much Profit is the Company Earning?
To be sure if a company is making a profit, you should look beyond its short-term earnings. You’ll have to dig deeper and go through its expense reports to understand it’s financial situation.
You should check if the company is paying back its debt or time or if it offer rewards to its shareholders. You should also check if the company is launching new initiatives. If not, it would mean that it is not financially stable to do so.
Another way to check a company’s profitability is by looking its return on equity (ROE). It show if the company is using its investments properly. If the company has a high ROE it means that it is doing a good job at managing its resources.
Question 4: Is the Stock Price Justified?
Here are the following valuation metrics that you should check if the stock you’re buying is being sold at a fair price.
- P/E ratio
It compares the stock price of the company to its per-share earnings. So, if a report shows that the ratio is high it means that the stock is overvalued.
- P/B ratio
There’s also price-to-book (P/B) ratio which shows the total value of the assets of the company. If the value of this indicator is high, it means the stock is overvalued.
Question 5: What are the Risks Involved?
There are some unavoidable risks involved in the stock market. However, here are some ways that will help you detect early if the value of the stock is about to fall.
- If the industry that you’ve invested in has gone through sudden and major regulatory changes, there are chances of sales falling. Thus, your money would also be at risk.
- Another indicator would be the sudden success of the company’s competitor. If its rival is launching a better product, it may attract all the investment interest towards itself. So, you should stay vigilant.
How to Better Understand the Functioning of a Stock Market?
Here are some ways to better understand the functioning of a stock market:
- Read educational articles
A really helpful way to learn about stock market and to keep yourself updated about the latest news related to the space is by reading articles on the topic. For stock related news you can refer to Bloomberg, or Techcrunch. If you want to learn more about investments in the crypto industry, you can refer to websites like Coindesk, etc.
- Use stock market simulators
If you are absolutely new to stock market investments, you should practice trading before investing your hard earned money. The best way to do so is by signing up on Stockpe – the most popular website for the stock market game. With over 300,000 users, it helps you learn about the stock market in four easy steps.
Step 1 includes you selecting a tournament that you would want to play.
In Step 2 you’ll have to create a portfolio full of real stocks.
Then, in Step 3 you’ll get a rank on the leaderboard. You’ll now also be able to play with other players.
Lastly, in Step 4 you will be able to withdraw your winning amount in your bank accounts.
If you’re confused about how to buy stocks on the stock market game, let us help you. After you sign in, you will be able to buy tokens by paying a minimal price. You can then use these tokens to buy shares in the game. About how to win the stock market game, you should first follow the instructions given by the platform and then build your understanding to progress slowly.
Frequently Asked Questions
1. What is the best stock market game app?
Stockpe is one of the most popular and preferred game app in the industry.
2. What are the best stocks to buy in a stock market game?
Some of the best stocks to buy in the game are NVDA, META, ADBE, etc.
3. How to win virtual stock market games?
There’s hardly any shortcut or secret to winning online stock market games. You’ll have to keep practicing to develop a sense of how to navigate through difficult situations.
Final Thoughts
Surviving in the stock market is not as difficult as it may sound sometimes. The key is to be vigilant and have a proper understanding of every market situation. Moreover, when it comes to investing in stocks, the more you research, the better it is.
