Generally, when people think of the stock market, they tend believe that its difficult or takes years to get a good understanding on how it works. But it's not as difficult as one may think. In fact, if you have a good enough grasp on reading and interpreting a stock’s quote summary, then you have what it takes to make educated small scale investments. Now remember that I said small scale investments, because you don’t want to perform medium to large scale investments based solely on the stock’s quote summary. You are going to need to do more research and more investigating on a stock before planning to invest larger sums of money. Nevertheless, the stock’s quote summary is still an important resource where you can quickly gather vital data on any stock.
One of the most valuable pieces of information included in a stock’s quote summary is the 52 week range. The 52 week range displays the stock’s lowest trading price and the highest trading price for the year. This data in invaluable because you will be able to get a good feel of where the stock has been. The data is also helpful in estimating the stock’s future prices. If you look at a stocks current trading price and see where it falls on the 52 week range, you will be able to make an educated estimation on where the stock is going.
Here is an example that should give you a better understanding of how to utilize the 52 week range. Imagine you find a stock titled ABC. ABC’s current trading price is $51.94. You are planning to keep the stock for more than a year and make it a big player in your portfolio, but you don’t know if investing in the stock is a wise decision. Then you take a look at the 52 week range. The lowest price the stock has been at this year was $4.32 and the highest the stock has been $15.21. Would investing in this this stock be a wise decision or not?
Well let’s reevaluate the facts. The stock’s current trading price is $51.94. The 52 week range said that the stocks lowest trading price for the year was $4.32. Here is a side note, whenever a stock’s trading price is under $5.00, it would make the stock a penny stock listing. The highest trading price the stock has been at in the last year was $15.21. Based solely on the data, provided investing in this stock would not be a wise decision. The current trading price very much inflated and there is no telling when the price would crash back to its normal prices.
Though that was a very simple example, it is evident how important the 52 week range is. So whenever you are planning to invest in a particular stock, or if you are just browsing around, remember to glance at the 52 week range. It can be a determining factor on whether a stock increases or decreases in price. Don’t forget that the 52 week range is only one factor out of many that should be taken in to consideration.
Monday, April 28, 2008
Friday, April 18, 2008
Market Capitalization
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap".
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively.
Frequently referred to as "market cap".
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively.
Stop Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.
Also known as a "stop order" or "stop-market order".
In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.
It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.
Also known as a "stop order" or "stop-market order".
In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.
It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.
P/E Ratio : Price Earning Ratio
A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as: Market price per share (MPS) / Earning per share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Also sometimes known as "price multiple" or "earnings multiple".
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.
Calculated as: Market price per share (MPS) / Earning per share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Also sometimes known as "price multiple" or "earnings multiple".
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.
Stock Investing Myths
1) Investing in stocks is just like gambling.
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Assessing the value of a company isn't an easy practice. There are so many variables involved that the short-term price movements appear to be random (academics call this the Random Walk Theory); however, over the long term, a company is only worth the present value of the profits it will make. In the short term a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever - eventually a company's stock price can be expected to show the true value of the firm.
Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. By investing, we increase the overall wealth of an economy. As companies compete, they increase productivity and develop products that can make our lives better. Don't confuse investing and creating wealth with gambling's zero-sum game.
2) Fallen angels will all go back up, eventually.
Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old Wall Street adage, "Those who try to catch a falling knife only get hurt."
Suppose you are looking at two stocks:
* XYZ made an all time high last year around $50 but has since fallen to $10 per share.
* ABC is a smaller company but has recently gone from $5 to $10 per share.
Which stock would you buy? Believe it or not, all things being equal, a majority of investors choose the stock that has fallen from $50 because they believe that it will eventually make it back up to those levels again. Thinking this way is a cardinal sin in investing! Price is only one part of the investing equation (which is different from trading, whch uses technical analysis). The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere. Make sure you don't confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.
3) Stocks that go up must come down.
The laws of physics do not apply in the stock market. There is no gravitational force that pulls stocks back to even. Over ten years ago, Berkshire Hathaway's stock price went from $6,000 to $10,000 per share in a little more than a year. Had you thought that this stock was going to return to its lower initial position, you would have missed out on the subsequent rise to $70,000 per share over the following six years.
4) Having just a little knowledge, because it is better than none, is enough to invest in the stock market.
Knowing something is generally better than nothing, but it is crucial in the stock market that individual investors have a clear understanding of what they are doing with their money. It's those investors who really do their homework that succeed.
Don't fret, if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Assessing the value of a company isn't an easy practice. There are so many variables involved that the short-term price movements appear to be random (academics call this the Random Walk Theory); however, over the long term, a company is only worth the present value of the profits it will make. In the short term a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever - eventually a company's stock price can be expected to show the true value of the firm.
Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. By investing, we increase the overall wealth of an economy. As companies compete, they increase productivity and develop products that can make our lives better. Don't confuse investing and creating wealth with gambling's zero-sum game.
2) Fallen angels will all go back up, eventually.
Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old Wall Street adage, "Those who try to catch a falling knife only get hurt."
Suppose you are looking at two stocks:
* XYZ made an all time high last year around $50 but has since fallen to $10 per share.
* ABC is a smaller company but has recently gone from $5 to $10 per share.
Which stock would you buy? Believe it or not, all things being equal, a majority of investors choose the stock that has fallen from $50 because they believe that it will eventually make it back up to those levels again. Thinking this way is a cardinal sin in investing! Price is only one part of the investing equation (which is different from trading, whch uses technical analysis). The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere. Make sure you don't confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.
3) Stocks that go up must come down.
The laws of physics do not apply in the stock market. There is no gravitational force that pulls stocks back to even. Over ten years ago, Berkshire Hathaway's stock price went from $6,000 to $10,000 per share in a little more than a year. Had you thought that this stock was going to return to its lower initial position, you would have missed out on the subsequent rise to $70,000 per share over the following six years.
4) Having just a little knowledge, because it is better than none, is enough to invest in the stock market.
Knowing something is generally better than nothing, but it is crucial in the stock market that individual investors have a clear understanding of what they are doing with their money. It's those investors who really do their homework that succeed.
Don't fret, if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
Friday, April 4, 2008
Online Trading Platform : India
Online Trading Platforms available in the India
1. IndiaBulls
2. Reliance Money
3. ICICIdirect
4. Religare
5. Motilal Oswal
6. Share Khan
7. Angel Broking
8. Geogit
9. Karvy
10. Aanand Rathi
Which one to Choose
1. Brokerage: must be very low, so that trading can be done regularly without much worry of excessive brokerage. But most of the brokerage house have multiple brokerage schemes & also vary from customer to customer (negotiable), so brokerage house can't be easily compared on this basis. But still I would say ICICIDirect seems most expensive & cheaper includes Reliance Money, Karvy, and Indiabulls etc.
2. Mode of Operation: Internet (Web based, Software based), Operable using Internet through mobile (Opera Mini) (though As per SEBI rules trading from mobile is not allowed), Phone, paper based. Most have multiple options or all option, considering this ICICIDirect & Indiabulls are good.
3. Integration of Services: Integration of bank account, IPO, Mutual Fund etc also counts.
4. Off-market Instruction: Some Brokerage house like Reliance Money doesn't allow this at present.
5. Stock Margin: Some Brokerage house allows you to buy beyond your cash balance (stock margin), so that you can cash opportunities like Sudden Market Crash
6. Downtime: some site remains down in off market hours for some time, Reliance Money is notorious in this regard.
7. Support: Indiabulls is best in this regard as you are allotted a Relationship Manager, so in case of any query you know whom to talk.
8. Others: Other factors also affect the selection as yearly maintenance charge, any special offer etc.
1. IndiaBulls
2. Reliance Money
3. ICICIdirect
4. Religare
5. Motilal Oswal
6. Share Khan
7. Angel Broking
8. Geogit
9. Karvy
10. Aanand Rathi
Which one to Choose
1. Brokerage: must be very low, so that trading can be done regularly without much worry of excessive brokerage. But most of the brokerage house have multiple brokerage schemes & also vary from customer to customer (negotiable), so brokerage house can't be easily compared on this basis. But still I would say ICICIDirect seems most expensive & cheaper includes Reliance Money, Karvy, and Indiabulls etc.
2. Mode of Operation: Internet (Web based, Software based), Operable using Internet through mobile (Opera Mini) (though As per SEBI rules trading from mobile is not allowed), Phone, paper based. Most have multiple options or all option, considering this ICICIDirect & Indiabulls are good.
3. Integration of Services: Integration of bank account, IPO, Mutual Fund etc also counts.
4. Off-market Instruction: Some Brokerage house like Reliance Money doesn't allow this at present.
5. Stock Margin: Some Brokerage house allows you to buy beyond your cash balance (stock margin), so that you can cash opportunities like Sudden Market Crash
6. Downtime: some site remains down in off market hours for some time, Reliance Money is notorious in this regard.
7. Support: Indiabulls is best in this regard as you are allotted a Relationship Manager, so in case of any query you know whom to talk.
8. Others: Other factors also affect the selection as yearly maintenance charge, any special offer etc.
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