>> What Does the Company Do?
>> Is the Company Profitable?
>> What Is the Company's Earnings History and Outlook?
>> How Richly Is the Company's Stock Valued?
>> Who Are the Company's Competitors?
>> Who Runs the Company?
>> Have You Read the Company's Annual Reports?
Showing posts with label Investor's Guide 2. Show all posts
Showing posts with label Investor's Guide 2. Show all posts
Wednesday, April 15, 2009
Things You Should Know Before You Buy a Stock
Why Stocks are Vital for Superior Growth
Equities are mainly growth investments, and can include things like real estate, art, and gold. However the most popular equity investments that people rely on for growth are stocks. But stocks can also serve purposes other than growth.
In addition to potential capital gains, stocks also have the potential to pay dividends. If you have equity in a business you are an owner, and if your company makes money, you are rewarded with dividend
In addition to potential capital gains, stocks also have the potential to pay dividends. If you have equity in a business you are an owner, and if your company makes money, you are rewarded with dividend
Expert Opinion
Financial experts have many opinions on many things, but there is one fact on which they will all agree. You need to have stocks in your portfolio to provide the growth you need to stay ahead and have a secure future over the long-term.
They also agree on the best way to invest in stocks is with a long-term view in mind. Over the long run, equities do go up and have proven to be the most profitable investment by far. But the key phrase here, the vital strategy for success is “over the long run”.
When you hold stocks for the long run you get good days and bad days. If you are a short-term trader, unless you have a crystal ball working for you, you are going to miss most of those good days. The simple secret to success is to stay invested.
They also agree on the best way to invest in stocks is with a long-term view in mind. Over the long run, equities do go up and have proven to be the most profitable investment by far. But the key phrase here, the vital strategy for success is “over the long run”.
When you hold stocks for the long run you get good days and bad days. If you are a short-term trader, unless you have a crystal ball working for you, you are going to miss most of those good days. The simple secret to success is to stay invested.
How Do you Decide when a Stock is Attractive to Purchase?
There are two general ways of determining a stock's potential as an investment. You can look at the “fundamentals” or you can look at “technical analysis” and of course you can look at both.
Fundamental analysis looks at factors such as earnings, cash flow, debt, strength in its industry, outlook for the industry, general economic factors, interest rates, and so on. If these factors are good, then even if there are short-term setbacks, over the long run, the stock should do well.
Technical analysis looks at factors like volume of trading, cyclical behavior, trends, moving averages and many others.
Some investors use both approaches. They use fundamentals to determine the long-term potential of a company and technical analysis to decide when to buy. For example, you may believe that a certain company has great potential over the long-term and will be worth much more in years to come.
However, it could be that the current market for this company’s product is temporarily weak and that as a result, the stock price could fall. Technical analysis could be helpful in determining how far the price might fall and could provide help in indicating a good time to buy.
How to Become a Shareholder
Shares of a particular company are offered by the following methods.
Initial Public Offering
An initial public offering (IPO) is the sale of equity in a company, generally in the form of shares of common stock. These shares trade on a recognized stock market. A company goes public; to raise capital for project funding, business planning and implementation; for marketing purposes.
Rights Issue
A rights issue gives the existing shareholders the right to subscribe for new ordinary shares at an issue price lower than the prevailing market price and at a ratio equivalent to their existing shareholding. Companies carry out a rights issue when they want to raise additional funds to finance their capital requirements.
The Stock Market
Stocks in publicly traded companies are bought and sold at a stock market also known as a stock exchange. This is the most common way of buying and selling shares.
Fundamental analysis looks at factors such as earnings, cash flow, debt, strength in its industry, outlook for the industry, general economic factors, interest rates, and so on. If these factors are good, then even if there are short-term setbacks, over the long run, the stock should do well.
Technical analysis looks at factors like volume of trading, cyclical behavior, trends, moving averages and many others.
Some investors use both approaches. They use fundamentals to determine the long-term potential of a company and technical analysis to decide when to buy. For example, you may believe that a certain company has great potential over the long-term and will be worth much more in years to come.
However, it could be that the current market for this company’s product is temporarily weak and that as a result, the stock price could fall. Technical analysis could be helpful in determining how far the price might fall and could provide help in indicating a good time to buy.
How to Become a Shareholder
Shares of a particular company are offered by the following methods.
Initial Public Offering
An initial public offering (IPO) is the sale of equity in a company, generally in the form of shares of common stock. These shares trade on a recognized stock market. A company goes public; to raise capital for project funding, business planning and implementation; for marketing purposes.
Rights Issue
A rights issue gives the existing shareholders the right to subscribe for new ordinary shares at an issue price lower than the prevailing market price and at a ratio equivalent to their existing shareholding. Companies carry out a rights issue when they want to raise additional funds to finance their capital requirements.
The Stock Market
Stocks in publicly traded companies are bought and sold at a stock market also known as a stock exchange. This is the most common way of buying and selling shares.
Things you should know about Equities
Stocks and shares are the most volatile asset class in terms of price movements and thus, the most risky. Hence, do not invest directly in the stock market unless you can bear a fall in price without it having any impact on your day-to-day living standard. Remember the saying: “the greater the reward, the higher the risk”.
The aim of investing in stocks and shares is to buy at a low and sell at a high, but knowing when, is the problem. Many investors attempt to time the market: they try to figure out when the market is going up and buy into it before it does, and then figure out when it is going to crash and sell everything just before it does. Unfortunately such spot on accuracy is usually impossible to achieve, so what you can do is try to catch a portion of each big swing. You buy when the upswing has begun, and sell as the downswing starts. But for this to work, you must be able to control your greed, as you do not know exactly when the top or bottom is reached.
The stock market can be said to be driven by two emotions: greed and fear. People get caught up in the boom fever and pay silly prices for unworthy shares - this is greed driving bull markets. In bear markets, people get carried away with the ruling negativity and are overeager to believe the worst rumors - this is fear dominating bear markets. You must step away from the crowd and not let them take over your rational reasoning and action.
The aim of investing in stocks and shares is to buy at a low and sell at a high, but knowing when, is the problem. Many investors attempt to time the market: they try to figure out when the market is going up and buy into it before it does, and then figure out when it is going to crash and sell everything just before it does. Unfortunately such spot on accuracy is usually impossible to achieve, so what you can do is try to catch a portion of each big swing. You buy when the upswing has begun, and sell as the downswing starts. But for this to work, you must be able to control your greed, as you do not know exactly when the top or bottom is reached.
The stock market can be said to be driven by two emotions: greed and fear. People get caught up in the boom fever and pay silly prices for unworthy shares - this is greed driving bull markets. In bear markets, people get carried away with the ruling negativity and are overeager to believe the worst rumors - this is fear dominating bear markets. You must step away from the crowd and not let them take over your rational reasoning and action.
How to spot Scams
Minimize the risk of losing your savings to scams by recognizing the different types of illegal investment schemes that are plaguing our society. Here are some typical characteristics and promises made by scams:
>> For every investment that you make, you will receive a high return, for instance, 20-30% per month, every month.
>> You are told that the offer is for a limited time and that you MUST join or buy today.
>> You receive unsolicited phone calls offering investment opportunities and you have no idea how the company has obtained your phone number.
>> You receive unsolicited e-mails asking you for your bank account number because they want to send you money.
>> You are offered an investment product that guarantees large profits with no financial risk.
>> It is hard to find any information about the company’s license or physical existence in any regulator or authority’s website.
What is the CDC
Central Depository Company of Pakistan Limited (CDC) started in 1993 to manage and operate the Central Depository System. CDS is an electronic book entry system to record and transfer securities. Electronic book entry means that the securities do not physically change hands and the transfer from one client account to another takes place electronically. CDC is to operate as a central securities depository on behalf of the financial services industry to support an effective capital market system that will attract institutional and retail level investors from Pakistan and abroad. Its basic purpose is to operate and maintain an electronic book entry settlement system for equity, debt and other financial instruments.
Capital Markets prior to CDS
The capital markets of Pakistan have witnessed a rapid growth resulting in increased trading volume. This in turn has led to difficulty in handling the share certificates. The custody and safe keeping of physical certificates required maintenance of huge vaults by the individuals and institutions and the physical settlement of certificates were no longer feasible. Moreover, the manual system was also plagued by long delays, risks of damage and considerable time delays. Following are some highlighted problems faced before CDS was in place,
1. Increased volume of book keeping and paper work.
2. Problems in settlement due to increased volume.
3. Maintenance of huge vaults for safe keeping of certificates.
4. Long share transfer procedure taking up to 45 days.
5. Payment of stamp duty on share transfers which ranged from 0.1% to 1.5% of the face value.
6. In case of new issues the issuers would take more than 2 months for the dispatch of certificates.
7. Risks of damaged, lost, forged and duplicate certificates.
8. Capital and time investment required for issue and dispatch of share certificates, cash dividend, bonus and right issues.
Benefits after CDS was incorporated
Following are some of the benefits of electronic settlement of securities through CDS:
1. Reduced workload due to paperless settlement environment.
2. Reduced manpower requirements.
3. Instantaneous transfers of ownership.
4. No stamp duty on transfers in CDS.
5. No risk of damaged, lost, forged or duplicate certificates.
6. No impact in case of sudden increase of settlement volumes.
7. Instant credit of bonus, rights and new issues.
8. Substantial reduction of paperwork during book closure.
9. Convenient pledging of securities.
10. Substantial reduction in time & capital investments.
Capital Markets prior to CDS
The capital markets of Pakistan have witnessed a rapid growth resulting in increased trading volume. This in turn has led to difficulty in handling the share certificates. The custody and safe keeping of physical certificates required maintenance of huge vaults by the individuals and institutions and the physical settlement of certificates were no longer feasible. Moreover, the manual system was also plagued by long delays, risks of damage and considerable time delays. Following are some highlighted problems faced before CDS was in place,
1. Increased volume of book keeping and paper work.
2. Problems in settlement due to increased volume.
3. Maintenance of huge vaults for safe keeping of certificates.
4. Long share transfer procedure taking up to 45 days.
5. Payment of stamp duty on share transfers which ranged from 0.1% to 1.5% of the face value.
6. In case of new issues the issuers would take more than 2 months for the dispatch of certificates.
7. Risks of damaged, lost, forged and duplicate certificates.
8. Capital and time investment required for issue and dispatch of share certificates, cash dividend, bonus and right issues.
Benefits after CDS was incorporated
Following are some of the benefits of electronic settlement of securities through CDS:
1. Reduced workload due to paperless settlement environment.
2. Reduced manpower requirements.
3. Instantaneous transfers of ownership.
4. No stamp duty on transfers in CDS.
5. No risk of damaged, lost, forged or duplicate certificates.
6. No impact in case of sudden increase of settlement volumes.
7. Instant credit of bonus, rights and new issues.
8. Substantial reduction of paperwork during book closure.
9. Convenient pledging of securities.
10. Substantial reduction in time & capital investments.
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