Before thinking of investing in a particular share, get introduced to the company. Do proper research on every aspect. Choose some shares, may be 10-12, which you think are good enough to be included in your portfolio and then study their movements for a month. Are they volatile taking into consideration the overall conditions in the market? To support and strengthen your evaluation, you have the internet, good journals and books on the share market.



Share market is not a lottery shop, where luck only matters to make money. This is a business activity and principles relating to fair running of the business need to be followed. A common investor enters the share market with a get-rich-quick attitude. Patience, discipline and study are the hallmarks of share investments.

You can start with the company's website. The investor's relations section will provide you with the detailed information and the future goals of the company. The latest quarterly report gives you fair indication about the current state of affairs and standing of the company. It is advisable for you to open an account with a good broker, preferably an on-line broker in this internet age. You will get advice, electronic access to real-time quotes and information related to investments. Your isolated study as for a particular share will not help much. Study also the competitors and what is your estimate of the company that you prefer. Whether it will be able to successfully withstand the competition and progress? What is the present level of profits and the expected growth? A company needs to have a well articulated plan to grow both revenue (the top line) and profits (the bottom line). Otherwise, the share price may remain stagnant.

Your options are in thousands from which you need to narrow down to 10-12 shares for the portfolio that fit into your objectives. What is your choice? Whether the growth shares or value shares? This needs to be decided first. Once this broad decision is made, some of the important aspects that must be looked into are:

Earnings per share (EPS)

EPS equals the company's net income after taxes divided by the average number of common shares outstanding. Your interest is to look out for companies with steadily growth in EPS.

Historical prices

Make a review of the historical prices and volume of trade for the preceding year. You get to know the price volatility, the type of movement, and the interest of the investors in buying and selling the share.

Return on equity (ROE)

This equals the company's net income divided by shareholders' equity. This is an indicator of how well a company utilizes shareholders' money.

Price/earnings (P/E) ratio

This equals the company's share price divided by earnings per share. This is generally considered indicative of how the market values a stock. Review the company's historical P/E ratio, the P/E ratios of other companies in the same segment and the P/E ratio of the market as a whole. Companies with higher growth rates command higher P/E ratios.

Price-to-book value

The ratio is calculated by dividing share price by book value, which equals a company's assets less its liabilities, per share. This is relevant while evaluating companies with strong asset base. Companies with low price-to-book values are considered as value stocks.

Ratios like, price-to-cash-flow, price-to-sales, payout and PEG need to be studied carefully. A regular investor must know how to apply fundamental and/or technical analysis to evaluate a particular share. Having studied all the theory aspects related to investments, yet the possibility of losses can not be ruled out. During abnormal market conditions, the usual investment guidelines may not be relevant. Your intuition-based judgment will play the part, and also the risk-level that you are willing to reach.

Follow the rules and try to grasp the market conditions before investing in any share.