Stock Investing for Dummies
Every investor needs to begin with:
- Knowing exactly what they want out of the market.
- Where to find information.
- Doing real research.
- Identifying long-term trends.
- Understanding the forces that drive markets.
As an investor, always outline exactly how much you are willing to invest and how much you are willing to lose.
Liquidity refers to how quickly you can sell a particular asset.
It’s important to understand the difference between investing, saving, and speculating.
Interest is paid to creditors, while dividends are paid to owners.
If you want greater return on your money, you have to tolerate more risk. if you don’t want to tolerate the risk, you have to tolerate the lower return.
If you buy a specific stock, you should track an index for its respective industry to measure its returns against the broader asset class.
The Russell 3000 contains the 3000 largest US companies, the Russell 2000 contains the smallest 2000 companies of the Russell 3000, and the Russell 1000 contains the top 1000 companies from the Russell 3000.
All the Russell indices do not contain micro caps, stocks with a market capitalization under $250 million.
The most valuable company report an investor can read is the 10K.
Assets - Liabilities = Shareholder Equity
Divide a company’s earnings by their equity to get ROE (Return on Equity). This will give you a good idea whether a company is using their assets effectively. The higher the percentage, the better. Shoot for 10% or higher.
IPOs are a way for companies to get additional funding by selling equity to investors in public markets.
Investing for income, almost by definition, necessitates you by dividend paying stocks and bonds.
Buy when people are selling and sell when people are buying.
Small-cap stocks tend to offer more opportunity for growth, but they also tend to be much riskier. Conservative or risk-averse investors should stick to large-cap stocks.
There are only two reasons to sell a stock:
- You need the money.
- The stock isn’t performing as desired or properly serving your wealth goals.
Be aware of a company boosting it earnings with a non-normal stream of income such as the sale of real estate or other investments.
Earnings are the most important metric to watch as an investor. If a company doesn’t make money, neither will you.
A rising book value tends to drive the stock price up with it.
Company success starts with consumers, so look to them for information about earnings, satisfaction, and overall quality of the business.
Stay informed. Successful stock picking doesn’t happen in a vacuum.