Are You A Redesigned Shareholder?
New shareowners are mostly a little iffy about stepping into the stock market for the first time and investing in stocks. Which is quite reasonable, given that the stock market can be quite frightening with all the different things it requires you to keep track of if you are interested in coming out with your money intact. But of course, there is no easy way to go about understanding the stock market. You just need to put in the effort and learn. The following three points should help you get started.
It may not seem obvious at first, but the price of the stock you’re buying is the most important thing to consider when you choose to go with investing in something. The price for the most part will determine how much you will gain by your choice of investment. No matter how well a stock does, it’s going to be very difficult for you to recoup your investment and get very far if you’re paying a lot for the stock to begin with.
As important as the price that a stock sells for is, you also want to take a look at the kind of intrinsic or native worth it has. What exactly is intrinsic worth though? You could start out calculating this by taking up all the assets of the company you are looking at, and subtracting all its liabilities from that figure. But that’s not really an useful way to look at it. A more sensible (and not to mention, easier) way would be to merely look at the company’s Earnings-Per-Share or EPS number and multiply that by the company’s annual growth rate percentage. The more you learn about valuing a company this way, the better you’ll be able to do to evaluate it. A more advanced method would involve taking in projected cash flow for the future and taking away long-term debt.
You keep hearing about small-cap and large-cap stocks, don’t you? Cap is just short for “capitalization”; and many investors use market capitalization as a way to evaluate the worth of a company. Market capitalization may be great way to see how much value a company has in absolute terms; it may not on the other hand be all that great a way to evaluate the company in a way that would be meaningful to an investor. For you the investor, enterprise value may be the way to go. For this, you need to take up the market capitalization figure, add up debt, preferred shares and minority interest. And then, you subtract all the cash from this figure.
What you do with the enterprise value you get this way? It tells you whether a company is going to get taken over or bought out.
Of course, no simple calculation is ever going to give you a sure bet when it comes to investing in stocks. But it does let you take an educated guess. And that’s the best you can hope for.
The author is a retired expat living in Thailand and loves penny stock broker
Processing your request, Please wait....
