There are so many website today containing stock market content, it is easy to get lost in a sea of information. It’s time to cut through the clutter and to know what really makes the live stock market work and the driving forces in play.
The first thing you’ve got to realize about the stock market content is that it is driven largely by the actions of uneducated investors. For instance, many people often times will purchase a stock based merely on speculation that it is a question to rise, or that oil prices are going up or down, etc.
Prices of stocks are largely driven by the yield and potential of the business it represents, demand-supply ratio for the stock and investor speculation. As demand for a stock rises, its price rises. On the other hand, as the call for a stock lessens, its price falls. Ergo, one could say that investor sentiment about the future performance potential of a stock and speculation are large driving forces that affect the stock prices.
Often times, these factors really have nothin’ to do with the companies overall profitability, and more to do with the economy as a whole. Unfortunately, uneducated investors will usually make their investment decisions based on how they perceive the economy to be doing, and not their particular company.
There are many factors that can be weighed when looking at potential investment opportunities according to Andy. An investor should look for companies that are reliable outside of being interested in your investment. Reliability can be assessed by the age of the company, the competitors of the business, the president’s letter to the stock holder ‘s, whether or not that society is a monopoly, and the future outlook of the company. The age of the company matters because if a company has been in existence for a long time and hasn’t had too many price drops, then you will be aware that this company should be around for many more years to come. When researching a company, a potential investor should compare and contrast the rival companies to his/her potential investment. It is also essential to read the chairman’s annual letter to the stock holders to see what sort of organization the company has. A rule of thumb is that if you are not able to understand the Chairman’s letter, then you should immediately scrap the investment. Another factor that should be weighed is to establish whether the company is a monopoly or not. If so then this investment is probably fairly good because no other company can do anything your company does. For example, Google, Inc. is currently a monopoly of the stock market. No other company can do what Google does or its stock wouldn’t be over seven hundred dollars per share. The final factor that needs to be weighed is the future outlook of the company. If a company has many good ideas that may result in an increase in its earnings, then it’s a good investment.
New investors also need to get to ask themselves, Is it worth the risk? Is the company a good buy? And have I done enough research? If you answer no to either of those questions then you need to consider your potential investment and look at other options. When evaluating your company you can also look for patterns in a society’s historical prices chart or graph. If you find a cycle that occurs more than twice, then it is probable that the cycle is continuous and you should watch for particular parts of that cycle to occur. For example, say a company’s stock is always about twenty dollars in February but by September of that year is has reached thirty-five dollars, and then slowly drops back to twenty dollars the following February. Perhaps you should consider buying the stock in February with the intention of the observance of the stock until September.
In evaluating the stock market, I have found that there’s no specific good or bad time to invest. It is the right time to invest when the price of the firm you wish to invest in is equal to or below the price you’re willing to pay. I have also noted that if beginning investors follow Andy’s guidelines for evaluating a stock, then they should be successful.
This is the main reason for the market crash in 1929 and it is the reason for every market downturn since. When uneducated investors get into the market, they tend to act as a ‘herd’.
In other words, when the financial analysts are saying to buy, they all act as one and often times buy, driving the stock exchange prices up even if a corporation is not doing particular well financially. Likewise, everybody could sell in a chain reaction to some news relating to the economy as a whole that really does not have nothing to do with the particular company they’re holding.
In both scenarios, the stock market is either severely over or under-valuing a particular company, with little relation to its’ actual profitability. This is the nuts and bolts of the way in which the market works.
Keep in mind: short term, the stock market tends to severely over or undervalue a company due to a number of factors, often many of whom had nothing to do with the corporation: however, long term it always value the company according to it’s earnings and actual profitably.
So what’s the lesson in all this? Don’t follow the crowd. Instead, take the time to educate yourself on how to interpret a companies’ financial statements, and determine how profitable that particular company is.
Only once you have determined this and made sure a corporation is a least reasonably profitable should you even consider investing with that company. The most important factors to read up on for the business in question is their profit margin, net profits, debt levels (obviously the lower the better), and probably most importantly, how long they’ve been turning a profit for.
Very simply, if a company has only been making money for the last two or three years, they probably aren’t a great company to invest with, because they have not proven they can be profitable for the long term. Try to find companies that have exhibited good profit levels for a period of at least 10 years, and preferably longer.
Having stock means owning a portion of that company; in this way when you purchase stock, you can said to be a ‘shareholder ” of the company (in the event of a fund, the fund would be the shareholder). As the company earns money, so do you; because you own a piece of the company, your share goes up in value with the worth of the company. People buy stock in order that they may either resell it later at a higher price or collect the yearly dividends that many profitable companies pay out annually. Buying a stock with the intent to sell it shortly after for a profit is a case in point of speculative investing. Even a long term investment on a basket of profitable companies will usually yeild an investor higher returns than a savings account of dividends alone.
Finally, the best places to search for a stock market ticker and information is probably on the net. You can get up to the minute stock information online. It’s becoming increasingly easy to invest your money online as well. This, in a nutshell, describes the stock market content and how you need to direct your investing decisions.