[vengabeats]

Price of a stock is not very important it is the valuation that is important
Typically in bull markets investors get attracted to low priced stocks. However, such stocks might be the most dangerous to invest into. First of all, if a stock is low priced despite the markets having moved up substantially then there has to be a reason behind it. That reason might be that the company is not doing well financially. Also it is important for investors to see the paid up value of the share of a company, where these days the face value of the shares of a company typically vary from Rs 1 to Rs 10. Most of the people think that all stocks are with a Rs 10 face value and as such a stock priced at Rs 10 with a Rs 1 face value would in the traditional sense be actually trading at a price of Rs 100. Moreover shares should be analyzed in terms of its price earning ratio (the most simple valuation tool for non-professionals) rather than the price of the stock. As a simple example if one share is trading at Rs 1000 and another is trading at Rs 10, but the per share earning of the first company is Rs 200 then its P/E is 5 (i.e. the stock is trading at 5 times its current earnings). However if the per share earning of the second company is Rs 1, then its P/E is 10, which essentially means that it is more expensive than the company whose stock price is Rs 1000.

Use common sense
Common sense is the most important and most difficult to use thing while investing. For example if a particular company is making some claims about its future growth prospects which do not seem likely given the performance of the domestic or global economy, investors should a such stocks even though the prospects might look very encouraging. If one believes that eh domestic economy will grow very rapidly and have huge investments in infrastructure then common sense would imply buying companies that benefit out of this. A buying stocks of companies where business models seem too complex or very difficult to analyze.

Understand that stock prices move on future prospects rather than the past
Although the past history of a company is very important for a proper analysis of the prospect of the company, investors should realize (which most people don't) that the stock prices move up and down based on future prospects of earnings growth rather than what has happened in the past. As such most of the results, which relate to a past date are already factored into the stock prices. As such a proper view formation on the future prospects is essential for successful investing.

Do not buy every thing in one lot
As we advise investors in our equity schemes to go for systematic investing, while investing directly into equities a systematic investment route should be the preferred route. Here the investor spreads out investments over different times and market levels so as to get good returns over the long run.