What factors to consider while investing a stock market?
Thinking about stock market?
Volume is the number of stocks bought and sold in a single trading day. If the Volume of the stock sold is low, the liquidity of the company is low. Low liquidity normally implies that it is hard to buy and sell because there aren’t many buyers and sellers. This triggers tremendous volatility which most traders normally avoid.
Price to Earning (P/E ratio):
P/E ratio is a critical formula in evaluating stock market. The formula for calculating P/E ratio is Price per share divided by Earning per share. If the stock price in the market is $2 and its EPS is $1, then the P/E ratio of the stock is 2 times. This is of utmost importance to the stock market investor because it determines whether the stock is overvalued or undervalued. Overvalued can describe as overpriced stock and Undervalued stock can consider as an under priced stock.
Earnings per Share (EPS) and Cash Flow per Share (CPS):
EPS breaks down the profit or earnings of a company in terms of individual shares. Investors should look for positive earnings as well as consecutive growth over each quarter. However EPS is not free from its drawbacks. Accounting department of a company can easily manipulate its EPS. But an individual must assign some value to EPS while selecting a stock for an investment.
Market Capitalization (Cap):
Market Cap can be computed by using the formula: Number of shares outstanding*Price per share. The market cap could have aspects of as the overall price to buy out a company. The market cap can classify the size of the company into one of the following categories: nano, micro, small, mid, large, and mega caps. The large and mega caps are worth billions of dollars, while the micro and small caps my only are worth several million dollars. Basically, the larger the company is, usually the more stable and safe it is. When investing, look at the market cap or size classification to find something that matches your risk tolerance. The smaller the company the more potential growth and the more possible risk. The opposite is true of large companies.
Dividends are cash paid per share by the company to its shareholders in response to holding their shares by the shareholders. They are comparable to coupons on bonds but t they are not as high as coupons on the bond. When investing in a company, check to see if they are currently paying a dividend. If a company has money to hand out, then they are usually doing well. The companies that pay the highest dividends often have steady growth.
It is important to collect information regarding what is happening inside the company itself. If the CEO recently dumped 50000 shares, it may be time to withdraw investment from the company. Insiders are more aware about the company’s financial and other crucial statuses. If employees in a company have been rapidly buying the shares for a company, it is a suitable time to invest in a company.
News affects the expectations and decisions of the investing public and expectations determine stock prices. Try to choose stocks that are not the victim of newspaper publicity and television headlines, and there’ll be much smoother sailing.
These are the factors in the part of company and affect one’s decision about the investment in the stock of a company.
Some of the personal factors that must be taken into account while investing in the stock market include:
- An individual’s financial roadmap: The first step in the successful investment is analyzing one’s own financial goals and risk tolerance. There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan. You should be able to gain financial security over the years and enjoy the benefits of managing your money.
- An individuals’ comfort zone in dealing with financial risks: All investments involve some degree of risk. If you intend to purchase securities such as stocks, bonds, ormutual funds, it’s important that you understand your comfort zone regarding your risk preference. The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals.
Still more to know
- One’s investment mix: It is better to include assets with negative correlation to other assets in the investment mix, or simply stock portfolio. By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can help protect against significant losses. In addition, asset allocation is important because it has major impact on whether you will meet your financial goal. If you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal. For example, if you are saving for a long-term goal, such as retirement or college, most financial experts agree that you will likely you will include at least some of the mutual fund’s stock in your portfolio.
The 3 most important rule of investing: