Why is it important to research stocks?

Researching doesn't only mean reading about the founders and the business model of a company. It includes all the internal and external factors such as financial statements, the company’s performance against the industry and compared to its peers, and many other things. I am sure you devote hours researching new gadgets (for example a mobile phone) before purchasing it, hence why not do some digging when you are about to purchase a part in a company.

How much time should you spend on the research?

The time you require to spend researching stocks is pretty subjective and depends from person to person. Although with the availability of advanced screening and fundamental analysis tools and platforms, the job is considerably easier. You can easily acquire all the data related to a company with a few clicks and taps on your computer. But the main part doesn't start here.

In order to begin the process, you have to first find out the sector and industry in which you want to invest. Once you find it out, the following steps become much easier. To find out the potential industry you can use the “Top-down Method” of analysis, where you start with the economy and narrow down your list to an individual or a couple of stocks of a potential industry.

Let’s understand this with an example, Let's say, you have a positive outlook on the Pharma Industry. In order to find the best stock from the industry, you can carry out a couple of things. To begin with, you have to analyze the economy as a whole for the pharma space to see whether it's in a growth phase or not. Next, you can move directly to the specific sector (Pharma sector, in this case) and try to narrow down your search to a further niche category. To find out these data points you might have to go through some business articles and analyst's forecasts. This should not take more than a couple of hours if you are not doing it for the first time. Beginners might take up another hour or more to undertake the same process.

In the same way, the stock-picking process is relatively simple as you can use any Fundamental analysis platform like Screener. In, or TickerTape to acquire all the required financial data on the stock. The overall process could take up around two to four hours depending on your research abilities and the depth you want to venture into. After your thorough research, you will be left with a handful of high-quality stocks of your favorite industry in which you can safely invest your money.

What are the alternate options?

Now that you know the actual process and the time required to undertake the task if you still think to save some time. You can easily invest in Mutual Funds, where you don’t have to carry out all the research and stock picking. A dedicated fund manager is appointed to do your job. Likewise, you can invest in Index Funds or Index ETFs which track the whole Nifty50 or Sensex and provide returns according. By using these, you can save the time which would be used for analyzing stocks.