The Map of Stock Investing
Stock Investing Process
a. Before Buying
Research Process
Analyze Intangible Factors: Assess qualitative aspects like company reputation, market presence, etc.
Calculations
Evaluate Metrics: Assess quantitative measures such as P/E ratio, ROE, etc.
Consider Moat: Examine the company's competitive advantage.
Analyze Growth Prospects: Look at the company's potential for future growth.
Check Debt, Profitability, etc.: Assess the financial health of the company.
Conduct Valuation:
Compare Relative Valuations with peers.
Use Discounted Cash Flow (DCF) for intrinsic value assessment.
b. During Buying
Determine Buying Price: Decide the optimal price to enter the stock.
Place Buy/Sell Orders:
Market Order: Buy/sell at the current market price.
Limit Order: Only buy/sell at a specific trigger price.
Use Stop Loss Order: Sell to cut losses when the price drops to a specified level.
c. During Selling
Determine Selling Price: Decide the optimal price to exit the stock.
Be mindful of Investing Fees:
Bid-Ask Spread: Difference between the buying and selling price.
Platform Fees: Charges by brokerage platforms.
Currency Exchange: For international stocks.
Capital Gains Tax: Taxes on profits made from selling stocks.
Dividend Tax: Taxes on dividend income.
Expense Ratios: Fees associated with mutual funds or ETFs.
Explanation:
This map provides a structured guide for stock investing, emphasizing the steps to take before, during, and after a stock purchase. It highlights the importance of research, valuation, strategic entry/exit points, and being mindful of associated fees and taxes. By following these steps, investors can make informed decisions and manage their investments effectively.
