Basic Things to consider before purchasing shares!

Shares reflect part ownership of a company and are increasingly become one of the investment avenues for all people in India. It is very interesting to see most people get into shares with dreams of making it rich over night. Most people go by the hype attached with shares and with very little knowledge of investments and valuation of shares. They buy when the market raises and sell when the market downs!

They should be doing the exact opposite. All the prudent and greatest investors
have bought stocks when the valuations were cheap. They tread where every one else feared. They sold when others were greed! So basically it is pure greed and fear! An intelligent share holder will not only understand the fundamentals of companies that he is wanting to investment but also understand the timing and valuations of the same.

Some of the best practices are:

Buy growth stories. These are companies whose sales are going to grow and hence the return for equity share will be higher.

Buy during down times and that too shares of good companies with good balance sheets. Look for debt risks!

Look for companies with a lesser market cap to sales ratios.

Look for lesser P/E multiples unless you are sure of the companies growth story. Higher P/E is not always undesirable but try to stay below a P/E multiple of 15 as a general guideline.

Check the company website and past bonuses/rewards they have given to share holders. If they have given good frequent dividends then they are definately worth it.

Last but not least try to find out about the company's management. IF they are dynamic chances are the company will see through tough times.

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