How to maximise profits in the stock market
Investors need to know the company's past, present and future plans to be able to choose stocks that may serve them the best
To make maximum profit from the stock market, one has to have a coherent idea about the capital market. Before investing in the capital market, you need to be able to differentiate high-quality investment bonds from junk ones.
And you can maximise your profits by investing in stocks of high quality because even if the market falls, there is no fear of losing capital.
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For this, before we invest, we have to make sure that we do not invest in bad stocks for the sake of extra profit, but invest in good fundamental stocks.
That's why investors need to know the company's past, present and future plans to be able to choose stocks that may serve them the best.
That is, investors need information on a plethora of issues like the personnel involved in running the business, the honesty of the directors, the efficiency, the product of the company, the market demand of the product, the financial basis of the company, the debt to equity ratio and share price relative to the dividend paid at the end of each year.
We also need to focus on a few more things: the distribution of the company's shares across institutional and foreign investment, owner's shares holdings etc. A well-informed investor should also thoroughly examine the company's financial statements.
Determining the amount of investment is also a key issue. No matter how knowledgeable and experienced the investor may be, his planning with a single share may not materialise. Therefore, it is necessary to reduce the risk by investing in multiple stocks.
Now the question is what kind of shares to buy and in which sector. We can find solutions to all these problems in smart portfolio management.
First of all, we have to select the sector for investment. From the selected sector, we have to select two basic shares one by one considering the issues discussed. Invest 60% of the total assets of the portfolio and keep the other part as opportunity Money.
We will invest in the selection of shares keeping in mind the following factors:
Keep the dividend cycle in mind
All companies in the stock market pay dividends twice a year i.e. December and June closing. So we have to carefully tailor the time frame of buying and selling shares to get the best out of our investment.
Shares that close in June must be invested in March-April and sold in May-June. On the other hand, all the shares that are closing in December have to be invested in September and October and sold in November-December.
Within this rule we must keep in mind the maximum and minimum in the last 52 weeks and the duration. We need to invest in stocks in a few steps at the lowest price and average purchase price.
Watch list
Investors need to keep an eye on the annual watch list. This is because after selling the shares, there is no need to re-analyse the new investment.
Determination of business trend
Being a smart investor means analysing and finding out the particular time frame when it is a wise decision to invest in a particular business.
Investors need to remain up-to-date with recent market trends to be able to take prompt decisions regarding buying and selling of shares. For instance, when a particular stock exhibits a downward trend, you have to go out with a certain loss.
Determination of investment term
We make two types of profit from our investment; firstly in the form of cash dividends and secondly through bonus shares. You can also make profits when the share prices increase.
First, we need to determine the time frame based on what kind of profit we want to make. It can be four months, six months and 1 year. If you have the capacity to refrain from selling shares and even incur a little loss in the short run, it is ideal to invest for the long term, especially in promising companies with a sustainable business model.
Get an idea of the total market
Every year there is an annual peak time and off time. For instance, the cosmetics and personal hygiene products market thrive in winter while the fan and AC market enjoys its peak in summer.
Quarterly EPS is announced based on good business and share prices go up and down based on the announced EPS.
On the other hand, if the total market is on a downtrend, you have to invest for the short term. You need to make a profit as soon as possible. Even if it is a loss, it has to be done. We also have to manage the trade by setting profit and loss limits.
Active stock traders
Active stock traders try to make a profit even if it is 5-10% short term (3 months). It is not good to sell frequently as it is more likely to cause loss. In the case of buying and selling, following the step-by-step method, i.e. buying and selling in a few steps, reduces the risk and increases the profit.
Therefore, it is possible to get maximum profit by investing in this market with proper training and knowledge of investors.
Md. Shah Newaz Mazumder is the Head of Operation at the Daffodil Institute of IT, Chittagong. He can be reached at [email protected].
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
