Most new investors tread carefully when investing in the share market. And understandably so. It is essential to weigh in the pros and cons of your investment decisions before setting out to invest in the stock market. Another factor that can also play a huge difference in how you trade and build wealth is whether or not you’re trading with a reputed broker such as Kotak Securities.
Throughout your investment period, you may have some good times–when the market is on a roll, and a setback if there are too many fluctuations. The key is to stay calm during a chaotic situation but at the same time exercise caution when making a decision. Hence, to avoid making a mistake, here are five vital signs you may want to watch out for before investing.
- Be alert on insider selling: Crucial decision makers of a company or company insiders possess inside knowledge about the business better than any retail investor or outsider. Since their understanding of the organization far outweighs that of an outside investor, you may want to watch out and scrutinize their trading activity. When these individuals begin to sell substantial sections of the stock from the company, it could be a red flag regarding the future of the business. It could indicate that the company’s shares are not likely to see much upside in the coming months.
- Stay alert on companies that reflect contracted gross margins: when the gross margins of a company begin to come down, it could be a red flag. Contracting gross margins of a business could indicate that the business is being compelled to reduce its costs in order to stay afloat. It could also be an indication that its production costs are rising, but the company is not able to transfer these expenses on to the consumer.
- Stay alert on regulatory modifications: some companies depend on regulatory ambiguities. And hence, when there are modifications in statutory laws, such businesses may be unable to keep up with the changes resulting in loss and eventually passing the losses on to the shareholder.
- Stay alert on companies that have few customers: companies that bank on a small set of large customers can be a red flag. This is because if these customers are no longer with the business, it could have adverse effects on the stock’s profitability.
- Stay alert on companies that display poor staff culture: unhappy, unfocused and ineffective workforce are massive red flags for any stock. This could mean that in spite of being unproductive, the workforce still gets paid which could hit shareholder investments. Moreover, the products and services of the company are also likely to suffer.
Conclusion
The emphasis on looking out for these five signs when investing in the share market cannot be overemphasized. At the same time, rapid advancement in technology, innovation and the rising culture of entrepreneurship on creating new businesses with the potential of building wealth for progressive investors are signs of an exciting future for the stock market. Keeping your eyes peeled on the market and making the right move at the right time could potentially change your fortunes overnight