Given the events of the past week – and expected global cues – the markets are likely to remain volatile for a while and even see some correction. So, be mindful of two things before making any buy decision. First, manage risks. If you manage risks well, returns will follow. Second, don't buy stocks because they look relatively cheap compared to the recent past – and that too based on a single ratio, the PE ratio. Rather, use the PEG ratio. This is determined by dividing a company’s PE multiple with its growth rate. (See example below.) By focusing on PEG, investors will be able to better differentiate between genuinely valuable growth opportunities and those stocks that appear cheap – and are cheap for a reason.
