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Wednesday, 9 November 2011

4 Things to look for in an Investment

1. What is the price of the entire company?
 When doing research it is important that you look at more than just the current share price - you need to look at the price of the entire company.
The cost of acquiring the entire corporation is called market capitalization.
Market Capital= (Price of all outstanding shares of common stock) *(quoted price per share at any given moment).
Market Capitalization test can help keep from overpaying for a stock.
another useful tool to help gauge the relative cost of a stock is the price to earn ratio(P/E ratio). It provides a valuable stranded of comparison for alternative investment opportunities. 

 2. Is the company buying back shares?
One of the most important keys to investing is that overall corporate growth is not as important as per share growth. A company could have the same profit, sales and revenue for five consecutive years but create the total number of outstanding shares.
A share holder should desire a management that has an active policy of reducing the number of outstanding shares.

3.What are the reasons for investing in the company?
Before you purchase stock in a company ,you need to ask yourself why you are interested in investing int hat particular opportunity. It is very dangerous to fall in love with corporation. Make sure the fundamentals of the company(current price, profits,good management etc) are the only reason you are investing.

4.The guaranteed way to success has historically been to select a great company, pay as little as possible for the initial stake, begin a dollar cost averaging program, reinvest the dividends and leave the position alone for several decades.

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