Stocks and shares are always promising sources of investment. But at the same time, they are considered high-risk zone for the investors. It is important to understand the tactics of choosing the right stock. In the absence of relatable knowledge, a big loss may happen. Are you also planning to invest in stocks? Then it is best to know how to pick the right one to reduce risk. For this method, the deep scan method is used. However, still many people are not aware of this trick. Why not know about it a bit.
What is the deep scan method?
This method is about the amalgamation of two words. DEEP + SCAN. Deep means going into the depth of the details, and scan means filtering the information to make the final decision. The deep scan method is the study of all the aspects of shares and stocks to understand the risk possibilities on a stock. It helps you find out the suitability of a stock according to the risk appetite of your profile. Studying the market conditions, past, present circumstances of a stock, and future possibilities all help to make a difference.
DEEP = Discount intrinsic value + efficiency ratio + ethical conduct
Here is how with the help of deep understanding, we select good stocks and take a decision.
Select through Discount to Intrinsic Value
Whenever we go shopping, we like to buy things at discount prices. Similarly, while buying a stock, you should also keep in mind whether you are getting this stock at a discount price or not? However, you should have the knowledge of the fair or intrinsic value of the share. If the share price is really less than its fair price, you should do further research on this stock and make a plan to buy it.
Efficiency Ratio is the necessary aspect
Investors pay special attention to the quality as well as its price before buying any product. Similarly, while buying shares in the share market, you should pay attention to the quality as well as the price while buying the shares. For this, you can see the company efficiency ratios and take the right decision. After all, buying stocks is not as easy as taking payday loans by direct lender despite bad credit where you can compare lenders easily. When it comes to stocks, you need to be careful.
Work on the Ethical Conduct
Business is religion and its root is trust. That’s why people keep waiting for a particular brand and buy products even after waiting in lines on the day of launch. Similarly, people working in any company also have to be honest towards their work and customers. In this way, knowing about the ethics of the company, we can decide about that company whether we should invest in it or not.
The Pricing Power is Significant
If a company has the products or services much better than its competitor, people will not hesitate to pay more. For example, many companies in the world provide mobiles and laptops at low prices. But still, people like to buy Apple products by paying a higher price. Why is that so? It is because the brand offers a better experience to its users. That is why Apple has become the leader in this industry. We know this factor as Pricing Power. Before investing, you should definitely find out about the company whether the company has Pricing Power or not.
SCAN – Scalability + Competitive Analysis + Appropriate margin of safety + No biases
We have learned about DEEP but now let us discuss SCAN –
Whenever a new investor selects stocks to invest in the share market, he only sees the company. But he forgets that he should think about the company as well as the industry in which he is.
For example, the insurance industry has more than a 3% share of the total market. Then companies working in this industry have more potential for growth and scalability. That is why if a company meets all other standards and that company is related to the insurance sector, you can invest in that company. With this, we also need to pay attention to how fast the industry is growing and the future of that industry.
All of us have used the Nokia mobile at some point or the other. But today, very few of us use that mobile. It is because the type of products that that company used to make failed to stand in front of their competitors. On the contrary, if we talk about Apple, then Apple always does something innovative. It is the reason that this company has maintained its reputation for so many years. Before choosing a company for investment, always find out whether this company is to stand in front of its competitors or not? Is there anything different in this company as compared to its competitors?
Appropriate Margin of Safety
Whenever a company makes a weight measuring machine, it definitely tells about the maximum limit of that machine. For example, the maximum limit of a machine made by a company is 300 IB, so it means that this machine can lift a little more weight than this. The company has made it in such a way that it can bear a little higher weight above 300 IB for safety. Similarly, you should also take full care of the safety margin while investing so that you can reduce the risk.
To trade and invest in the share market, you have to work on psychology too. It is because when it comes to money, a person becomes emotional very quickly and can make him do a mistake. If too many people ignore a company, it may have a desperate feeling for the new investors. However, if the attention of more investors is not towards that company, it does not mean that the company is not always suitable for investment. You should always work with a sharp eye and search for undervalued companies.
The above details tell that stock trading is not risky if you know how to keep a rational approach. Deep Scan helps to keep the right approach and know the nerves of the market.