Investing in Stocks

investing-in-stocksWhen you buy a stock, you literally buy a share of a company, thus the term shareholder. Stocks can be categorized in a number of ways; a common way is based on value.

For example, large-cap stocks (IBM, Amazon, Ford, Johnson & Johnson) have market capitalizations of $500 billion+. They are typically the least risky because they have more cash on hand during rough times and are often industry leaders. Many of these companies also pay dividends to its shareholders.

Mid-cap stocks range from $1 to $5 billion in market cap (Starbucks, Foot Locker; Bed, Bath & Beyond). These companies may not be any riskier than large-caps, but potential for growth is generally less.

Small-cap stocks have less than $1 billion in market cap (Papa John’s, Boston Beer Co., 99 Cents Only Stores) and are the most volatile and/or risky of the three when it comes to investing in stocks. On the other hand, they have a lot of room to grow.

Investing in Stocks: What You Need to Know

You should only invest in stocks after you’ve done your homework to find out about a company you might be interested in. That could mean reading financial newspapers like the Wall Street Journal, basic investing books or websites like Wyatt Investment Research. Make sure you’re familiar with the focus of the business. Is it involved in a new technology or an established one? Is it a market leader? How has it performed over the past few months?

Tip #1: Never invest in just one stock.

Tip #2: Know you’re tolerance for risk.

Tip #3: Do your homework

You might even want to review a company’s most recent earnings report to see how stable and profitable it is. Some of the metrics used are:

  • Price-to-earnings ratio (P/E)
  • Price-to-sales ratio (PSR)
  • Return on equity (ROE)
  • Earnings growth
  • Debt-to-asset ratio
  • Free cash flow

It’s never a good idea to take someone’s word about investing in stocks or assume that because a co-worker has made a lot of money in one company that you will too.

Most importantly, never invest in just one stock. If a company goes bankrupt, so will your retirement account. You can diversify by buying many different size stocks or by investing in indices. For example, the S&P 500 is the 500 largest companies that trade on the New York Stock Exchange (NYSE).

Investing in stocks is not a game. Be smart, be cautious and don’t get greedy and profits will come your way.

What’s Far Better Than Bitcoin

Yes, the bitcoin boom and tales of fortune made and lost have fueled excitement about cryptocurrencies. Here is an avenue to big gains that is far better than bitcoin.

5 Top Summer IPOs That Really Sizzle

These top summer IPOs have already seen share price increases of 31% to 67% after the companies went public, and there are more in the pipeline. Learn how to snag profits in initial public offerings.

High Times Plans to Go Public on NASDAQ

The next among the "cannabis stocks" may be High Times magazine, which doesn't produce cannabis at all but is a media company focused on cannabis issues.

The Timeless Investment Strategy for Every Income Investor

Dividend growth investing stands the test of time for the income investor. Learn how dividend growth investing can build wealth for you.

The Next $13 Billion IPO

Reuters reports that Spotify – currently valued at $13 billion – is secretly preparing to go public. The Swedish company is getting serious about an IPO: it has hired investment bankers at Morgan Stanley, Goldman Sachs and Allen & Co. Most investors will wait for Spotify to start trading on the NYSE. But a select … Continue reading The Next $13 Billion IPO

More Investing In Stocks Articles