How to identify and successfully invest in long-term stocks?

Find out the time-tested approach towards building your long-term stock portfolio with high growth and return prospects.

The secret of how to choose stocks for long term investment in India lies in exploring the past, present, and future of the stocks in your watchlist. By looking at all the three time horizons, you get a better idea of which stocks to buy for long term. 

How to explore the past performance of stocks?

To explore the past of the successful stocks for long-term investment in India, you have to identify the historic metrics of the stock, specifically the alpha and the beta. Alpha is the difference between stock return and index return. Successful long-term stocks will have a positive and high alpha, i.e., a better return than the index. 

Beta, on the other hand, is the measurement of risk or volatility. With the index graph as the benchmark of beta, higher than one beta would mean that the stock is more volatile than the index, and vice versa. Ideal shares for long-term investment are those  with the lowest beta and highest alpha.

How to pick stocks considering present performance?

You cannot pick a stock going solely by past performances. A golden streak in the past does not necessarily mean that the stock will continue to perform well in the future. Here are a few things you need to consider:

• Prefer large companies for long-term share investment as they are stable and provide steady returns. Smaller companies struggle for market share, which keeps their long-term survival less than assured. 
• Have a look at the business and financial performance of the company. A company with strong fundamentals is always a better option for the long term than one with high returns but dubious financials.
• Make sure that the stocks you plan to invest in performed well in recent times.
• Your long-term investment in stock market must have a good trading volume. This adds liquidity to the stock.
• High promoter holding is an important factor in deciding how to pick stocks for the long term. 

Related: Smart ideas to pick winning long-term stocks

How to look at the future aspects of shares?

If you are planning to shortlist shares for a long position in the stock market, you should also look at the prospects of the shares.

• Shares with good corporate governance are important. You should monitor news about changes in management and strategies of the company that you have invested in.
• If you are investing in an evolving industry, make sure that the company is innovating itself to stay in the market.
• A large-cap company is of little value if it is not expanding and maintaining its stronghold in the market. Long-term stock picks in India are the ones that are innovating themselves to maintain growth.

Related: Long-term bond yield and its effect on your equity and debt investments

There are also a few things you should not do if you are looking for which share to buy for the long term. There may be benefits of investing in penny stocks, but there are also high risks involved. As such, they don’t qualify as ideal long stocks. 

Don’t look for hot investing tips. Instead, form a strategy on how to buy long-term stocks and adhere to it. With these preparations and precautions, you can create a reliable and profitable long-term portfolio.