Investing in the stock market: How to start
We live in the world today and there is no lack of access to investment information. However, this in itself can be a huge problem. Ask questions about how to invest, where to invest and what to look for that can bring you many answers from many different sources. The trouble is diving through all the clutter and find the relevant information to suit your needs.
So, when you invest in the stock market, where do you start?
The first thing to invest in what you know. If you want to evaluate a company, make sure you know how it works. The great Warren Buffett has often been criticized for not investing in the Internet boom. His answer is simple. If you do not know the business model, what does the company do every day, or how it generates revenue now, in the future and then away from it. Because of this, he made billions of dollars year after year for himself and his investors.
Once you know what type of company to look for, you need to think. News boards, press releases, financial news programs and stock filters are good places to find ideas. Inventory filters are particularly useful because in addition to finding ideas, you can narrow your search to fit your qualifications. I personally have my good fortune to use a filter at Http://finance.yahoo.com .
So you find some companies worth studying, what's next?
1. Insider trading – This is any person who is considered to have internal knowledge of the company and has the funds to invest in the company's shares. This could be someone with 10% or more of a company, director, chief executive, chief financial officer, and so on. Watching when insiders buy and sell stocks, and the prices they do, can be very useful in predicting the future of stocks. You do not want to buy a big stake when everyone at Company X goes out. So always a good idea to see what "smart money" is doing.
2. P / E Ratio – The P / E ratio is also a useful tool for evaluating companies. P / E will tell you whether the company is undervalued or overvalued. Undervalued companies should have a price-to-earnings ratio lower than the other stocks in their industry. It's a great value to insert a stock filter to find a profitable company.
Note: P / E can be manipulated (think Enron). In addition, the price-earnings ratio is very different depending on which department you are looking for. Technology stocks can have an average P / E of 60, while oil companies can trade at an average P / E of 10. Whenever I evaluate a stock, I do not look at all other companies' P / E ratios, but I look at it with rivals in the industry.
3. Technical Analysis and Charting – This is another tool that can help you understand the company's history, where the company is now, and where the future is headed. It displays the company graphically, where you can view stock activity and volume over time. You can find: Many of your tutorials on the Internet, this, you can get an even
Free DVD that shows you the basics from Http://www.technitrader.com .
4. Management Team – Some people just look at the company's earnings, charts and other technical methods. This is not always a bad thing, but to really understand a company, you should know management. You should know what other companies they were involved in in the past, and where they were in the situation. You should also know which company they plan to evaluate, and the time period they are assigned to. It's kind of like evaluating a sports team. You will not choose a championship team without looking at the coaches of the staff.
These are several ways to help find a company to invest. As with anything, because of your homework, write out your goals, when in doubt, ask for one that has already been done what you are trying to do. Knowledge is the key to success in anything.