Top 10 Investing Mistakes

stocks

Stocks are a sort of security that provides shareholders a share of ownership in a firm. They are additionally known as “equities”. The difference between a stock and an equity is that stockholders are entitled to a proportional share of the profits of a company while equity holders do not get any such rights. Equities are stocks whose owners are entitled to shares of the profits of the company. Stockholders also are paid dividend or per share of profit in stocks.

Stocks differ from bonds in that bonds carry a default risk and because of this their price usually fluctuates. Stocks on the other hand stay put irrespective of the fortunes of a company. Therefore, stock price is driven by a multitude of factors including, expectations of profit, interest rates, sales and returns, internal strengths and weaknesses, business prospects etc. Stock price is highly sensitive to external factors such as earnings, interest rates, earnings, growth rates, political developments and changes in liquidity and liquidity risk.

When the price of a stock changes too much from its recent level, this may be a hint that the company is not performing well and as a consequence the price may be expected to drop.

Stock prices canttt go up and down without an explanatory reason. Stock prices are influenced by several things. Factors such as earnings, cash flow, sales, marketing plans, company growth plans, future development plans, market uncertainty, legal matters and even human emotions are responsible for the price of a stock. When there is more financial uncertainty, the stock price will be volatile. However, there is no perfect indicator to pinpoint a bottom or a peak in the price of a stock. For an average investor, the key to making money is to use technical analysis to anticipate market movements.

Budget Basics

A budget is a plan where companies make decisions about how much money they are going to make and how much of that money they are going to invest in various business lines. In the same way, an investor decides how much money he or she is going to put into a portfolio and also what types of stocks they are going to invest in. In other words, the budget is the basic plan or the blueprint. The plan must cover not only the company but also the industry.

Company Profiles

By studying the company’s profile, an investor can predict how well the company is likely to perform. For example, it is known that a company in which the investor has invested has recently acquired a company that provides office furniture. This will give the company an immediate competitive advantage.

Asset Allocation

The next step is to analyze the assets of the company. It is very important to know how much of the company’s capital is dedicated to assets like land, plant and machinery and how much is dedicated to intangible assets like brand equity and brand name. By knowing this, the investor can decide how much of the company’s market value he or she is going to invest in and how much of the company’s market value is going to be risk capital. When investors make decisions on the company’s asset allocation, they usually make the decisions based on the risk capital buffer or the capital availability buffer.

Market Value and Risk Capital Buffer

By understanding how risk capital is allocated, investors can make good decisions when buying shares of a company. Risk capital is capital that the company is going to lose because of certain events that might be impossible to replace or repair. In this way, a company’s market value can increase or decrease because of certain events. The risk buffer is the maximum value of the company that the company can earn before its investors suffer any losses. It is important to know how much of the company’s market value the company is going to earn before its risk capital increases.

Author: admin