Equity Investment Basics
Investors who are looking to take the plunge into the equity markets now that the economy is starting to recover will need to follow these basics if they are looking to make wise equity investment choices.
1. What is the Price-to-Earnings Ratio for the security in question? Finding out what the PE ratio for a security is allows investors to determine how much revenue each dollar they invest generates for the company. Obviously, the lower the PE ratio, the cheaper the stock price. This ratio can be used to determine how expensive a stock price is relative to comparable securities.
2. Understand the security's Debt-to-Equity ratio. This simple ratio tells investors how much debt a company owes for every dollar they have in equity in the company. Obviously, the higher this number, the more debt the company has, which can translate into solvency problems during difficult economic periods. The lower the debt the better, but understand that debt-to-equity ratios will vary from industry to industry, so one security's ratio needs to be compared to another security's in the same industry.
3. Find out what Professional Analysts feel about the stock in question. Since most public companies are reviewed by investment houses for possible inclusion in their own portfolio, these companies will often publicize their recommendations. These recommendations will vary, but will be either Buy, Hold or Sell. Finding out what the pros think about a particular security can provide further confirmation of a position that an investor is looking to take.
While the above three tips are nothing close to being exhaustive, they do provide equity investors with a starting point when evaluating potential trades.
For investors who prefer to skip the numbers-heavy research aspect of proper investment management, mutual funds provide an attractive alternative, as all financial research is done by the fund company. - 23167
1. What is the Price-to-Earnings Ratio for the security in question? Finding out what the PE ratio for a security is allows investors to determine how much revenue each dollar they invest generates for the company. Obviously, the lower the PE ratio, the cheaper the stock price. This ratio can be used to determine how expensive a stock price is relative to comparable securities.
2. Understand the security's Debt-to-Equity ratio. This simple ratio tells investors how much debt a company owes for every dollar they have in equity in the company. Obviously, the higher this number, the more debt the company has, which can translate into solvency problems during difficult economic periods. The lower the debt the better, but understand that debt-to-equity ratios will vary from industry to industry, so one security's ratio needs to be compared to another security's in the same industry.
3. Find out what Professional Analysts feel about the stock in question. Since most public companies are reviewed by investment houses for possible inclusion in their own portfolio, these companies will often publicize their recommendations. These recommendations will vary, but will be either Buy, Hold or Sell. Finding out what the pros think about a particular security can provide further confirmation of a position that an investor is looking to take.
While the above three tips are nothing close to being exhaustive, they do provide equity investors with a starting point when evaluating potential trades.
For investors who prefer to skip the numbers-heavy research aspect of proper investment management, mutual funds provide an attractive alternative, as all financial research is done by the fund company. - 23167
About the Author:
Find out more about Bond Funds as well as Investment Strategy at the MutualFundSite.org.
posted by X - Men @ 6:00 AM
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