Is this a good Stock?

How do you know if you should invest in a stock? There are some standard ways that you can use to evaluate a stock. Start with the ticker symbol or the letters that identify a stock on a stock exchange. You can usually find out the following:

last traded value - most recent per share prince that it was purchased at
net change - how much it has gone up or down
bid price - most recent amount offered for it
ask price - most recent amount someone has offered to see the stock for
day high and low - highest and lowest price for the day
volume traded - number of shares trade in the last day
52 week high and low - highest and lowest price for the year
price

Plus the really important stuff:
P/E- Price to earnings ratio. The lower the number is usually the better.
EPS - amount of earnings the company generates per each share of stock that exists. The more generated the better.
Dividend & % - shows the current dividend and the percent of earnings that the dividend represents. Not all companies issue dividends.
Capitalization - the total number of outstanding shares times the price per share. There are large and small cap companies. Generally the smaller the market cap of a stock the riskier it is.

When you examine this information along with company listings of financial information you see if the company is financially sound and if its revenues and earnings have been increasing on a regular basis.

You'll need to look at how much debt or loans the company has. In general, less debt is better than a lot of debt. Also look at how well the company is doing in comparison to its competitors and the industry too.


There are print and online resources that provide financial information on individual stocks and industries.

Investing - Sectors

Experts divide stock into categories based on industries. These industrial categories are called sectors. Most financial advisors recommend that a diversified portfolio should include from five to teen stock in different industries. Familiar examples of industrial categories are retail, health care, technology and energy.

Sectors are important because many factors effect the economy in different ways. Some industries do well while others do poorly. For example, when the economy is doing well and wages are up, retail stores do well. When the economy is doing poorly, companies that provide necessities like health care or food do well, but retail stores do poorly. People have less money to spend on non-essentials. In this way, diversification helps protect your against large overall losses.

Investing - Diversitfication

The key to protecting your money when you invest is diversification. It means to have a variety of investments. Why should you diversify?

If you have all your money in stocks and the stock market goes down, your collection of investments will most likely decline at a rate that's similar to the market. Your collection of investments is called your portfolio.

But if two thirds of your money is invested in stocks and one third is in bonds, then you profolio will most likely decline less than the stock market. Putting some of your money ni stocks and some in bonds is an example of diversification.

You can diversity even more by putting together a combination of different categories of investments such as stocks, bonds, CDs and cash. You need to select a variety of investments within each category. You'll want to make as much money as possible while protecting the money that you invest.

How Stocks Earn Money

Stocks earn money in two ways: increasing in value and dividends. When a company's revenues (money earned) and profit are increasing, the value of a share of its stock increases. As a result, buyers are willing to pay more for it. Capital gain is the difference between what you originially paid for a share of stock and its present value. If its value decrease, that's a capital loss.

Stocks also may pay dividends. The key to growing investments is reinvesting your captial gains and dividends. When you reinvest the money you make from investments, you buy more share with it instead of spending it. Over time, you own more and more shares and have more and more gains and dividends.

Investing - Exchanges, Brokers & Stocks

A share of stock represents a tiny share of a company. Stocks are sold in different stock markets or exchanges. The two major exchanges are the New York Stock Exchange (NYSE) and NASDAQ or the National Association of Securities Dealers Automated Qutation system.

To buy stock, you place an order with a broker. A broker is someone who completes transactions between buyers and sellers. There are different types of brokers:

full service- provide investment advice and recommendations
discount- place orders at a low price but limited advice
electronic- place orders over the Internet

In addition, some mutual fund companies offer brokerage services.

There are two types of stocks: common and preferred. There are two difference between the two types of stocks. A company will decide whether or not to pay a dividend or a percentage of it's earnings to stockholders. Preferred stock pays a guaranteed dividend. If a company goes out of business, their assets are used to pay off bond and stockholders. Preferred stockholders are paid before common stockholders. If there is no money left then common stock holders will not be paid.

Bonds

A bond is a loan to a company or government. When a company or government needs to raise money, it will often issue a bond. When you buy a bond, you are paid interest at regular intervals such as monthly, quarterly or annually. There are several different types of bonds:

Treasury bonds - issued by the federal government. they are available in two, five and ten year periods. The periods are when the bonds mature or the money is payed back to you.

Municipal bonds - issue by state or local governments. Interest earned is not taxed as long as you live in the state where the bond is issued.

Corporate bonds - issued by a company. Interest rates vary. Riskier companies often pay higher rates in order to get people to buy their bonds.

Investing - Rish and Reward

You invest because you think that you can make money. However, you can lose money too. That's risk. For example, you could buy a share of stock for $10 and it could increase in value to $50 or decrease in value to $0.

Some stocks are riskier than others. Often the riskier an investment is, the greater it potential gain. A larger potential gain can also mean a larger potential loss. How much risk is appropriate? It depends on three factors:

Your age. The younger you are, the longer yo have to gain back money you lose because you'll be working and investing for many years.

Your financial situation. If you support a family or your saving for a specific short term goal then you will want to take less risk.

Your personality. Some people are adventurous while others are nervous when they feel their money is at risk.