The whole process of scientific and rational stock investment contains the following basic processes

Stock investment refers to the whole process of dividend distribution and capital gain for investors based on the purchase of stocks and is the main way of inve...

Oct 25,2022 | SARAH

Stock investment refers to the whole process of dividend distribution and capital gain for investors based on the purchase of stocks and is the main way of investment.

A scientific and reasonable stock investment process generally includes the following basic processes.

Define the current policy of stock investment

The first step in the investment process is to define the stock investment policy Severance Payment（遣散費）, which includes defining the overall investment objective and the total amount of funds available for investment. Since stock investment is classified as a risky investment and risk and return are positively correlated, therefore, it is neither appropriate nor objective to include only earning and not losing as the stock investment objective. The objective and correct overall investment objective should be to both earn money and bear the possible damage. Therefore it is clear that the overall investment objective should include both risk and return.

Conducting stock investment analysis

Stock investment analysis is the second process, there is also the understanding and analysis of the characteristics that define the stock or stock composition in the first step of the investment chain. One of the effects of this scientific research and analysis is to identify the mechanisms of stock price formation, the elements that jeopardize stock volatility and the mechanisms of action, and another aim is to identify stocks with meaningful price deviations Top 10 Rising Stocks（十大升幅股票）. There are many different methods of doing stock investment analysis, and these can be roughly divided into two types.

Technical analysis

Specialized analysis is a general term for all types of analysis that uses certain historical records to make judgments about the future direction and level of movement of the entire stock sales market or the price of certain stocks. The purpose of high-tech analysis is to predict and analyze the trend of stock price decline and rise, in fact, it is to deal with the problem of "when to buy and sell". Professional analysis focuses on the analysis of stock prices, which are determined by supply and demand; however, professional analysis does not study the various factors that jeopardize supply and demand, but only analyzes multiple aspects of supply and demand, stock trends, etc.

Stock Fundamental Analysis

Fundamental analysis of stocks is based on the premise that the true value of all assets is the same as the discount rate of all expected income streams of the owner of the assets. Fundamental analysis is a scientific study of the value of a stock by analyzing the company's management model, industry information and the general economic situation, i.e. dealing with the question of "what stock to use". On this basis, the basic analysis attempts to forecast and analyze the number of hours of such cash flows, and then reapply a moderate discount rate to convert it into a discount rate. Specifically, it is necessary to forecast and analyze not only the discount rate, but also the future earnings stream of the stock. If the predicted stock price is too high, it is sold; if the predicted stock price is too low, it is bought; the difference between the real value and the price quotation jeopardizes to some extent the investor's ability to discern the stock price. Basically, analysts feel that all relatively large price errors can be corrected by the sales market; in other words, the price of neglected stocks also rises rapidly, so the price of inflated stocks also falls substantially.

Generating stock investment composition

Creating a stock portfolio is the third process of the investment process, which consists in determining the stocks in which the investor invests and the percentage of capital in each stock. In it, the investor needs to pay attention to a number of issues such as the selection of certain stocks, the selection of the timing of investments, and the diversification of their investments. The selection of individual stocks is a matter of predicting and analyzing the market prices and fluctuations of various stocks; the selection of investment timing is a matter of predicting and analyzing the market prices and fluctuations of various stocks; the diversification of investments is a matter of establishing a minimum risk investment composition in a certain profit environment based on certain specific conditions.

Portfolio adjustment

As the fourth step of the investment process, portfolio adjustment is actually a timely look back at the first three steps, i.e., the investor changes its overall investment objectives or investment goals over a period of time so that the composition of the current stock holdings is no longer optimal, which requires selling some of the existing stocks and purchasing some new stocks to generate a new composition. This choice depends entirely on transaction costs and the desired level of improvement in investment sales performance after composition adjustments.

Portfolio Performance Evaluation

The fifth process is the portfolio performance evaluation, which is a periodic assessment of the portfolio performance, not only on the basis of the investment return, but also on the basis of the risk taken by the investor, and therefore, there must be comparative norms for considering profitability and risk.