Stock Investing Info
Stock investing is about a lot more than just buying some pieces of paper with attached value. When you purchase a share of stock you’re buying up a share of ownership in a company or organization. Those companies that go public are collectively owned by their shareholders, with each share representing a claim on the assets as well as the earnings of that organization.
There is no single type of stock because investment types vary as well as the range of investment – whether it’s a short term or long term ride. The most common way in which the market is divided is by the size of the company (which is measured by market capitalization), the sector and the type of growth patterns.
Calculating Stock Value
For short term investments in stock, the behavior of the market is often based on emotional responses to media and current trends or events that take place. Essentially it boils down to enthusiasm, fear, rumors and news. Over the long term, stock value is primarily decided by company earnings. This ultimately determines whether the stock will go up, down or sideways.
Long Term Investment
While the value of any investment can be debated when compared to other investments, the comparison is apples to apples. Since World War II the economy has been through a variety of ups and down. Despite economic upset the average large stock continues to return close to 10% each year, which continues to move ahead of inflation and is greater than the return on bonds, real estate and other savings vehicles where one compares long term investments. Because of this, many investors target stocks for long term goals like retirement.
Key Points of Stock Investments
It’s important to note that because one stock rises or falls, that does not mean that others will follow suit. Individual stocks are not the market and a good stock can even rise while the market goes down. Conversely, a poor stock can plummet even when the market is on the upswing. The prices on stock shift and change constantly, typically as the performance of each company changes. Those prices are based on the projections of future earnings and while a strong track record for a company or stock can help with choosing stocks, even the best companies can slip.
Stock also is not chosen by the individual price, because it’s impossible to know how expensive a stock is by the listing. With a value based on company earnings, a $150 stock can be cheap if the company’s earnings prospects are high, while a $5 stock can be expensive if the earning potential looks grim.
To gain a sense of whether stock is over- or undervalues, investors compare the price of the stock to a variety of factors include company earnings, the flow of cash, performance expectation against others in the industry, etc.
How Stock is Traded
Investors often turn to brokers to handle their stock investing. When looking for a broker you can choose between a full-service broker, a discount broker and an online broker. The difference is primarily in the price of commission paid and the amount of advice offered. A full service broker will contact you with stock ideas and can consult on stock trades with you, provided a range of data from their research department to show why certain picks are better than others.
Discount brokers provide less advice at a higher savings on commission. Online brokers typically put a great deal of the picking and investing in your hands, using automated systems to trade for you.
This information is for educational purposes only and in no way guarantees your profitability by trading the equities mentioned. See Terms and Conditions.