Investors should put in mind that the stock market fluctuates. Although that is it's nature, and whenever the market swings down, some investors begin to lament the dip in the prices of the shares. Some investors get confused as to what to do with their investments. Many are in dilemma because if the decide to sell then, they will end up recording losses. They therefore, have no option than to wait for the time the shares will bounce back. But stock market experts believe that if investors select good stocks, whichever way the market swings, the investors would be confident that they will end up going home with good returns. This means that they may not be disturbed by the anxiety that always follow a bear run as often witnessed at the stock market. However, selecting good stocks is not an easy task. Although investors use different methods and processes to select stocks;the following steps will help you.

*THE PRICE

The first thing to look at is the price of the stock. The price is the absolute determinant of return. A company that has it's share price at #10 is more attractive than the one with #15. To further illustrate the importance of price, a company that is generating #5 earning per share and is selling at #20 per share, it is a better buy than another company with the same #5 EPS but is selling at #200. The #20 price will give an earning yield of 25 percent, while that selling at #200 gives a yield of 2. 5 per cent.

*SOURCES OF INCOME

The company's products/services determine sources of income and cash flow. The value of any asset is the net present value of it's discounted cash flows. Before an investor can even begin to value a business, it is important to know what is generating the cash. It is also important to be specific and avoid making assumptions. It is advisable to equally know the industry the company is operating to determine if the products are in high demand and know period such demand hit their peak. This will enable to know when the company generates most cash.

*CASH FLOW SUSTAINABILITY

If a company is operating as a monopoly, there is every tendency that it will enjoy high cash flow. Hence one of the ways to evaluate the sustainability of cash flows is to examine the barriers of entry for the market or markets in which the company operates. Because it will be more difficult for a competitor to enter a business which requires high capital than it is for a retail business that needs only small capital to start.

*BOARD AND MANAGEMENT

The fact that a company is operating in a thriving industry does not guaranty good profitability. The people running a company matters a lot to its successful operations. There was a time when banking was highly attractive and many entrepreneurs went into it, yet many of banks went under on the account of poor management. So, an industry may be thriving but some of the companies operating in the industry could still be performing poorly. Hence, it is necessary for you to know the board and management of a company when considering buying it's shares.

*EARNINGS GROWTH

Take a look at earnings. A company that is not posting growth in its earning cannot fetch you good returns because it will not have enough to declare as dividend. And when company does not declare dividends it cannot attract high demand that can lead to capital appreciation. The earning growth does not necessarily need to be high, a steady and consistent growth is enough.

*DIVIDENDS

You must ensure that the companies pay healthy dividends. If they pay a healthy one? Are they growing them regularly? Consider the pay out ratio, if it is also healthy? Note any inconsistencies and possible find out the reasons.

*POLICY CONSISTENCY

If a management pronounces inconsistent or conflicting policy statements, avoid such a company. If for instance, a company stated in the last annual reports that debt reduction was the most important priority, but they have engaged in multiple acquisitions or started multiple new businesses that is bringing in new debts, they are not being honest. It is dangerous to invest in such a stock.

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