Things to consider when investing in shares and mutual funds

When investing in shares or mutual funds, you want to be associated with highly successful mutual funds or companies. And management is the key to the growth of these bodies. But are the key management personnel of repute? You should look for a management board that can be trusted to run the company successfully and honestly. Experienced managers, with sound investment insights and with a reputation of making maverick investment decisions, can indicate good times ahead.
Understand the performance of the mutual fund before investing. While past performance is not a guarantee of future performance, you’ll get an idea of the scheme’s performance in comparison with its peers over various market conditions. A mutual fund that has maintained a sizeable profit margin and performed relatively well in the past indicates a not-so-bad future.
Assess the mutual fund prospectus and find out the sectors in which they invest to evaluate the degree of risk involved. Mutual funds that have a diversified portfolio and are flexible to change their investment strategies accordingly are always a good bet. When investing in shares, also, diversification is important. Find out if the company has a variety of operations. Companies offering multi-products can maintain their profitable position, if for instance, when one line of business declines, the other increases.
Now, let’s dig a little deeper into picking quality shares. Picking the right share is determined by two things. First, you want to pick a profitable and well-run company, and second, you want it at a good price. It’s pointless to look at one variable and ignore the other. In other words, you can’t pick a great company whose share is priced too high by the market and still, you can’t pick a cheap share if the company is a loser. But how do you tell whether a share is expensive or cheap? A prime way of finding out is by calculating the price-earning (P/E) ratio.
P/E ratio gives information about the profitability of a company and its share price, thus providing a good starting point when trying to pick a good share at a reasonable price. The lower the P/E ratio, the higher the value for money the share represents. In addition, the P/E ratio can be used to make profits as well as prevent losses since it provides an early signal to either get out of a share or invest in a share. It’s good when evaluating a company, therefore, to always compare its ratio with that of other similar companies.
Another great way to invest in shares is by picking undervalued shares. And how do you know if a share is undervalued? By getting your hands dirty and digging into a company’s financial statements and assessing its future plans, you can know when the share price is wrong. So by understanding company fundamentals at the very least, you are able to pick the undervalued shares.