In today’s world everyone wants some way to earn more money in less time for them Stock market is the good but risky way but they have no idea where to start? In this article you’ll learn how to get started from zero to making money in the stock market.
A common advice in Stock market is to diversify, which is good advice. However, not knowing anything about the companies will eliminates the benefit of diversification.
To start firstly list out 5 Companies that know have great products. Listing these companies is the first step to make future earnings. Use your professional experience and life experiences in listing these 5 Companies. These are companies you would love to own for the long term because you know they have staying power and are well regarded by the industry in which they work.
In Stock Market price goes up when there are more people buying the stock than selling. That’s all to say. But question is why people will buy the stock.
Generally, it’s a good news about the company, and the main news that drives prices up is solid earnings growth.
Always look for the company that has a unique product type or niche of business. Who is dominating?.Who offer some unique product so they don’t have much competition in the market.
Momentum is a two sided sword. Momentum can be of two type good or bad. Good Momentum is a steady increase in the price of the stock over a period of time. The bad momentum is when everyone is jumping on a stock because the price is going higher but there is no good data backing it up. At this point it becomes a fool’s game of who is the greater fool. Eventually you run out of fools and there isn’t anyone left to buy and drive the price up and the stock crashes.
This point is a little technical but it’s great to know this information. It’s kind of like the vitals or health of the company’s stock.
Revenue – This is the total amount of money the company has earned during the time frame you selected. Revenue should be rising over the past 3 years.
Earnings – This is the money the company actually kept during the time frame you selected.
Debt – Just like personal debt it can be bad and you don’t want the company you buy to have too much. You’ll see below how to determine how much is too much in the debt to asset ratio.
Equity – This is calculated by taking assets – liabilities. Equity is always good. You’ll see how to measure the company’s use of equity in the Return on Equity ratio below.
Price to Earnings Ratio (P/E) – This is basically the current stock price divided by the earnings per share. This gives you an idea of how much you are paying for the stock versus what they are actually earning. This gives you a comparison number versus other stocks and how expensive they are. By itself I would not put too much stock in it, but when comparing stocks to other stocks and using all the other data I’ve given you in this guide you can get an idea how expensive the stock is. The average is 15 – 25. So, if a company’s P/E is below that, it tells you that company may be undervalued and is inexpensive compared to other stocks. However, if it is above that it may be a bit overpriced and has too much momentum. I would use this as a guide incorporated with all your other data and not P/E alone.
Return on Equity (ROE) – ROE is how much of a return the company is getting on the equity. This means how much money they are making with the money they have. In other words, it shows how well the company is using its equity. It is calculated by the formula Net Income/Equity. This is a great tool to compare stocks. Obviously the more return on equity the better. It’s also great to see this ratio growing over time as well.
Debt to Asset Ratio – This ratio tells you how much debt they have in comparison to their assets (cash + property). Ideally the less debt the better. This is another great comparison tool to compare companies.
Always remember one thing you have to realize that your stock will go and up and down every day. You can’t look a stock chart every day and determine to sell based on a dip in stock price. There can be some days when the entire stock market is down and sometimes for even months during a down turn. You have to look at the long term with stocks. I recommend only looking at your stocks on a weekly basis if ups and downs make you nervous. Emotions are your worst enemy in investing. If you stare at the charts day in and day out and the stock is not doing well you may panic. Your gut will tell you sell, sell, sell! Don’t listen to your emotions!