Businesses, and how to know which ones to invest in

Long term investing is the best way to go for most investors, and when it comes to long-term investing a small percentage of your portfolio should be made up of singular stocks that you have done your research on and truly believe in. Depending on of course what kind of risk you want to take. But most of you, however, take the risk and have a larger percentage of your portfolio in singular stocks. Now, if you ask me your portfolio should probably be made up of funds, bonds, commodities and a small percentage of singular stocks. Either way, if a part of your portfolio is made up of stocks, then you should know which ones to invest in, so you don’t jeopardize your portfolio. Therefore, I will go through how to invest in singular stocks, going deeper into how you find winners, and essentially how you value a business worth investing in.

You probably saw in the title that I wrote businesses instead of stocks, or maybe you didn’t but it doesn’t matter because the thing that matters is to realize that the stocks that are listed are actual businesses that are in a marked and deliver a product, service or whatever.

And you need to know that looking at the stock won’t really do you any good, you should rather be looking at the business, how is it structured, who runs it, what are they selling/offering, what market are they in, how does their employees feel about the company, what are the financials saying and so on.

Now, the companies that you should invest in are probably blue-chip stocks. Blue chip stocks are businesses that are a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors. These types of companies would be best suited for the long-term investing portfolio. Now, it is fine to invest in other types of stocks but for the long-term investor, these would be the better option. Now, of course there are exceptions, for example if you stumble upon a business that is not well known or established, but you have done research on them and found that the business is a winner. Either way, you should always do your research on the businesses you decide to invest in.

The first factor that decides if a business is worth investing in or not is where the business itself is placed and who runs it. Before you invest in a company you need to know what kind of product/service they sell/offer and what kind of market they operate in. But most of all you need to know who the management is and who their employees are and what kind of work influence and attitude they have as a whole. I can’t tell you how many examples there are of businesses that have implemented the wrong partnership, leader or team that have ended up destroying the company and being its downfall. So, the first thing you should investigate when you want to invest in a company is what they offer, what market they’re in, and who runs the business.

The second factor that decides if a business is worth investing in is how the company is valued. Moreover, before you invest in a business you need to know that the price of your entrance is fair. And the most common way to decide a business valuation is the price to earnings ratio. Now if the company is undervalued you would usually want to stay away from the business, unless your strategy is passive dividend investing. Either way you would want to know how the company is valued.

The third factor is the financials, what you should be looking out for when you investigate the financials of a business is if the business has decent cash flow and growth. And you should be looking into what kind of debt the business has, if they have debt at all. But the main message is that, are the business is financially sound and stable? If you’re unsure about how to make a valuation of the business concerning the financials and so on, then go through these questions about the business and see how it turns out.

– Have their profit margins improved from the past year?

– Are they in a good financial position?

– Is their dividend yield sustainable?

– Is their share price liquid and stable?

– Do they have high quality earnings?

– Are there any concerning events?

– Have shareholders been diluted over the past year?

– Do they have a good level of revenue?

– Do they have negative shareholder equity?

– Do they have a meaningful market capitalization?

If the business is good to go on so to speak most of these questions, then, you can investigate the rest of the factors. And if it all turns out good to go, then you are ready to invest in the business but only if you believe in the business yourself.

Now, if the business passed on, so to speak everything that was important, then you can look at the stock itself and see what the history has been and what kind of dividend they offer or what kind of forecast analysts have given the stock. But remember, to go through all this research thoroughly and be skeptical of any danger at all.

Dividend investing through singular stocks

Dividend investing is a strong strategy, especially for long term investors. And for those of you who don’t know, dividend investing is an investing strategy where you invest in stocks that have a good dividend yield and then compound the dividends.

Essentially earning from both the dividend yield and the possible return from the stock. If you want more knowledge on this topic, then check out one of my earlier articles on dividend investing…

Now, when you choose your businesses to invest in, I highly recommend having at least some of them as dividend stocks. This is because when you get a dividend yield you can compound that return onto the original investment, essentially largening your investment even more. This strategy works excellently in a long-term investing portfolio, so as I have said before, long term investing is the better option.

When you invest in businesses you need to know that there are levels of risk you are taking by investing in these businesses. But the most important thing you need to know is that the more you know the less risk you take, meaning that if you have gone through thorough research, looked at every aspect and concluded to invest then the only risk you are taking is what you don’t know or what you have misconceived about the research. It also goes in the opposite direction, the less you know about your investment the more you are essentially gambling with your money. So therefore, do your research thoroughly and be smart about who you chose to invest in, and invest for the long run.

But before you go, I would just recomend two incredible books that truly goes in depth on investing and how to do it right. the books im talking about are “The Little Book of Common Sense investing ” by John C. Bogle and “The intelligent investor ” By Benjamin Graham, these are two very exprienced investors who put their knowledge of investing into these books, so i recomend you go check them out.

Thank you for reading.

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