Getting started with investing with ASX shares can feel overwhelming. With hundreds of listed companies across dozens of industries, knowing where to begin is often the hardest part.
But the good news is that you don't need to be an expert to find quality shares. A few simple principles can help you identify shares worth considering for the long term.
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Focus on ASX shares that are already profitable
When you're starting out, it can be wise to avoid businesses that are still trying to prove themselves. These might be exciting stories on paper, but without a profit to show for it (or at least a valid pathway to profitability), you're taking on far more risk than necessary.
Instead, look for ASX shares that are already generating consistent earnings like CSL Ltd (ASX: CSL) or Goodman Group (ASX: GMG). These businesses have proven demand, operational discipline, and are far easier to value. More importantly, they're less likely to surprise you with sudden losses or funding issues.
Avoid overpaying
A great business isn't always a great buy. Valuation matters. Paying too much for a stock, even a strong one, can lead to underwhelming returns.
One way to keep things simple is to compare a company's share price to how much money it makes. If a stock is trading at very high multiples of its earnings (aka its PE ratio), it may need to deliver exceptional growth just to justify its price.
That's a big ask, and not all companies pull it off. Though, it is worth remembering that some ASX shares are growing at a rapid rate and can justify high multiples. This includes shares like WiseTech Global Ltd (ASX: WTC) and Life360 Inc. (ASX: 360).
Stick with what you understand
If you can't explain what a company does in plain English, it is probably best to move on. Buying into a business you don't understand is like investing blindfolded. You'll have no way of knowing whether its performance is good, bad, or expected.
The best investments are often the simplest. Companies that make things people need, sell products that are easy to follow, or operate in sectors you're already familiar with are a good place to start.
Take a long-term approach
The share market can be unpredictable in the short term. Prices go up and down for all sorts of reasons—some logical, some not. But over the long run, the best businesses tend to rise in value.
That's why it pays to take a long-term approach. Pick strong ASX shares, pay a fair price, and give them time to do what they do best. Trying to time the market or jump in and out of trades is more likely to hurt your returns than help them.
Foolish takeaway
Investing doesn't need to be complicated. If you focus on buying profitable, fairly priced businesses that you understand, you'll already be ahead of most new investors. Add in a long-term mindset and a little patience, and you'll be giving yourself every chance of success.
