Stock investment brings financial security , flexibility and tax advantages but you should have a financial and research knowledge.
- To continuously generate some income
- Companies generate earnings by selling products or service.
- Shareholders are compensated for their risks through a risk premium.
- Stocks are more likely to generate long term income.
Factors to consider
Stock is a business of buying business. see something favorable in billions of mind. For example, coca-cola Its running business for a long time and it sells more and more every year. And people still think positive about coca-cola. So, look for the widening of the product.
Write down the qualities and service of the product.
But overall , James O'Shaughnessy's "Trending Value" method is a good one.I described the method in my own way
At first ,I download all financial information on every company available so that i can value whatever metrics in whatever way I want.I mainly figure out 6 six statistics to form a stock's value for part 1 and rank them in 0-100 with 100 being the "best" and 0 being the "worst".Those 6 six statistics are
Secondly, i sort 490+ stock by 6-month relative price to get the ordered list of financially sound or stable companies that the market is behind.I find out the right direction by finding out the financially stable company without having growth.
Steps in selling or purchasing stocks or selling a stock
Before you start investing you should be familiar with some key terminologies below.Please feel free to advise me at the end of this article if you feel I've missed an important one.
Market capitalization = current stock price * No of outstanding shares.
Day range – lowest and highest price of a stock in a day
52 weeks high and low- highest and lowest price paid for the stock during the past year.
Stock - The name of the company name, every stock has a symbol.
EPS: Earnings per Share or net consolidated earnings divided by the number of shares. EPS lets you know which earnings have been distributed to shareholders.
CA: corporate actions like take-over bid, a public exchange offer or a capital increase that could impact share values
Write down the qualities and service of the product.
- Good money
- Social programs
- massive military
- expenses go up due to military cost
- Fiat
- loss of faith
- end of currency and inflation
But overall , James O'Shaughnessy's "Trending Value" method is a good one.I described the method in my own way
At first ,I download all financial information on every company available so that i can value whatever metrics in whatever way I want.I mainly figure out 6 six statistics to form a stock's value for part 1 and rank them in 0-100 with 100 being the "best" and 0 being the "worst".Those 6 six statistics are
- P/E
- P/S
- P/B
- P/F
- CF
- Shareholder Yield (which is stock Buybacks + Dividend Yield) EV/EBITDA
Secondly, i sort 490+ stock by 6-month relative price to get the ordered list of financially sound or stable companies that the market is behind.I find out the right direction by finding out the financially stable company without having growth.
Steps in selling or purchasing stocks or selling a stock
- A decides to invest in the stock market
- B decides to sell shares of company X
- A's broker finds out the highest bid to buy or the lowest offer to sell
- A tells his broker to purchase 40 shares of X at the current market price.
- B orders to sell her 40 shares at the current market price.
- Both orders executes and transactions are processed accordingly.
Key Terms
Before you start investing you should be familiar with some key terminologies below.Please feel free to advise me at the end of this article if you feel I've missed an important one.
After-Hours Trading –Any trading done before and after the major stock exchanges are closed. In the United States, major stock exchanges open from 9:30 am ET to 4:00 pm ET
Market volume – It is the amount of stocks of a company traded over any period of time.
Market capitalization – It is the total value of a company determined by stock market.
Market capitalization = current stock price * No of outstanding shares.
Day range – lowest and highest price of a stock in a day
52 weeks high and low- highest and lowest price paid for the stock during the past year.
Stock - The name of the company name, every stock has a symbol.
Div: dividend. For each share, shareholders receive at least $1.76 from company's annual profit. It is a portion of profit paid to stockholders. Dividends could be cash or stock paid to investors. It is the profit split between all of the company’s shareholders and more shares you own more dividends you get. And it is paid out every 4 months (quarterly)
P/E - Price/earnings ratio for the last year.It is a good indicator of a stock strength as lower the PE ratio,the higher the earnings.
Yld% or yield (rate of return) = annual dividend/current price of stock
Sales 100s: Total amount of stock traded during the previous day.
Bear Market – It is a period of time when most stock are declining in value.
EPS: Earnings per Share or net consolidated earnings divided by the number of shares. EPS lets you know which earnings have been distributed to shareholders.
CA: corporate actions like take-over bid, a public exchange offer or a capital increase that could impact share values
Asks Price – It is the price that the buyer asks to pay to buy a stock. In general ask price is slightly higher than the current value of a stock. Let’s say 26 for 25.5 valued stock
Bid Price – The price that is offered by a buyer. When both bid price and ask price are met up than the transaction occurs for desired number of shares.
Bull Market – It is a period of time when most stock are increasing in value.
Call Option – It is a buyer and seller agreement to make the trading on specific date, at fixed price per share with certain fee paid to seller. The seller cannot back out the deal if the buyer intends to buy as per agreement.
Commission – The fees paid to a stock broker for your order execution. The fee varies according to different company.
Daily Volume – Total amount of shared traded in a daily basis.Each stock has its own daily volume chart and it shows how active or passive they are in the market.
Discount Broker – A discounted broker is the one who facilitates trades and offers trading for a discounted price.
Fiscal Year – It is a 12 month accounting period designated by a company and it can begin anytime in a year but once it begins,it can’t be changed.
Fiscal Year – It is a 12 month accounting period designated by a company and it can begin anytime in a year but once it begins,it can’t be changed.
Stock index –It is a specific group of stocks.It is a method of measuring the value of a section of the stock market.It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors , financial managers and reporters to describe the market, and to compare the return on specific investments.
Limit Order – When buyers and sellers don’t wish to make a real time trade they both can give limit orders to each other.Buyers place a limit order when stock price drops to a certain buy/low point and similarly seller place a limit when stock price rises to a certain sell high point.
Margin – Buying a stock on margin simply means borrowing money from brokers to buy a stock.Investors take advantage of this opportunity when they don’t have cash to make an immediate good deal.
Market Order – It is an order that executes immediately at the current price of stock.
Put Option – Here the seller gets the power of trade but have to pay premium fee for this option and if buyer and seller agree on a put option than the seller has the right to sell his stock anytime to the buyer before the expiration date occurs.
Portfolio – A portfolio is simply a collection of all your investments.If you own 4 stocks A,B,C,D then your portfolio would have A,B,C,D stocks
Preferred Stock – Preferred stock is the result of negotiation that takes place between investors and company.It holds higher value to investors than common stock because dividends are paid out first and sometimes at a higher rate.The owners of preferred stock have no voting rights within the company but owners of common stock have.
Preferred Stock – Preferred stock is the result of negotiation that takes place between investors and company.It holds higher value to investors than common stock because dividends are paid out first and sometimes at a higher rate.The owners of preferred stock have no voting rights within the company but owners of common stock have.
Quote – It is the current price of the stock and some websites give it in real time while others with a time delay of around 10-15 minutes.
Short Sale – It is the sale for a short period time where investors can sell others stock for a short time in the hope that it declines. The profit or risk bearer is the investor in this case because either on stock price increase or decrease the investor have to buy it back.
Ticker Symbol – It is a unique abbreviation of a company in a stock exchange and contains usually 1 to 5 characters. A tickler symbol is unique representation of a company and is publicly traded in a stock exchange.
Research methods
Research methods
- Get an access to information about the global economy and the markets from Internet, newspapers, magazines and news etc.
- To see initial public offering of a stock, get a prospectus of that company.
- Get company’s annual report, quarterly reports and insider transactions etc.
- On the Internet look for issuer, current price and past performance graphs
- Also find some details about investor fact sheets, annual reports and management backgrounds
- Look for balance sheet to see the company performance.
- Check previous year and current year changes.
- Look for debts and liabilities like unpaid wages, loans and taxes etc
- Check the net worth of the company. Total assets must equal to liabilities and shareholder’s equity.
- Look for income statement of a company, expenses and total money left for reinvestment.
- Look for past working capital and spending criteria’s.
- If possible, check the truthfulness of annual report from an independent accountant..
