People think investing is dangerous, risky or scary. But the only thing to do is to learn how to invest without worrying. Investing cannot be learned overnight. Still, it is something you can move forward quickly. It is possible to create the right portfolio by looking at very simple indicators and making very simple analyzes.
You need to create a portfolio for risk sharing. Professional investors say “don’t put all your eggs in one basket”. Because if all your eggs are in one basket, you may lose all your eggs when something happens to your basket. In this case, you have nothing else to compensate for your loss. Novice investors often make this mistake. However, when things go wrong, you should be able to balance the loss from one investment with another. If you have many baskets, it won’t be a big problem if one of your baskets falls. That’s why we must diversify our investments and create a portfolio.
As the first step in creating a portfolio, we should look at the P/B ratio of the companies we will buy shares. This ratio helps us to have an idea about whether the lot we will buy from that company is cheap or not. If the ratio of Market Value (P) and Book Value (B) is less than 1, the share is cheap. When it is higher than 1, we say the share is expensive. But of course this is not always the case. Sometimes, even if a company’s P/B ratio is 4, we consider that company’s stock cheap. Because the industry of the company may have started to improve. As a result of this, all profit rates and market values of companies in that sector increase. While the ratio of the company we are looking at is 4, the P/ B ratios of other companies in the sector may have reached values such as 8, 10, 15. Then we can think that the share of this company is cheaper than other companies for now and will be valued. However, the reason why a company’s stock is cheap is important. Is this company not yet valued in the industry or does this company have a problem? Did the company borrow money but couldn’t pay its debts? Was there a negative news in the media? Does the company have foreclosed assets? Is the owner / CEO a bad reputation?
It’s easy to learn all this. After typing the name of the company and “P/B ratio”, search on google. In the results, there will be sites showing the company owner, company executives and company partners. You can also search those names on the internet. Explore, find the site you can read most comfortably. What you have to do is google the code of a company that has publicly listed shares on the stock exchange. On the Internet you will find announcements, postings and notifications made by the company. Check them out too.
Let’s say you looked at company executives, company’s announcements and investments; you did not see anything negative. While the company’s P / B ratio was 4, the others in the same sector were 10, 15. If you haven’t seen anything negative, you can say that the shares of this company are cheap for now even though the P / B ratio is higher than 1. The cheaper will be valued. You can now add this company to your portfolio for medium term investment. But remember, don’t put all your eggs in one basket.
If you are interested in investment, check out these also:
- YOU ARE THE PERSON TO TAKE CONTROL OF YOUR INVESTMENTS
- DON’T BE AFRAID TO INVEST YOUR MONEY
- THE KEY TO BEING A SUCCESSFUL INVESTOR
- YOU NEED TO SAVE MONEY
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