HOW TO BUY SHARES

When you are ready to invest in the stock market, it is crucial to decide which stock is worth investing the money in. And to succeed in the stock market, one needs to employ some strategies to find such good stocks. Stocks are selected based on certain criteria rather than randomly. This ensures higher returns than in case of the average market profits. But, it is important to always remember, that there is no specific strategy or magic key to avoid losses and get high profits in the stock market! First step in the stock investing process is to select the right stock. And selecting a right stock needs regular study of the stock market, the companies listed on the stock exchanges, their financial statements, etc. All this information and more can be obtained from many free websites, finance papers, and even the regular newspapers. Getting started with familiar companies will help. Decide on how much you want to spend before deciding on where to spend! Be slow and steady in the stock market and a little experience will help you decide when to buy or avoid a stock. Learning technical analysis will be of great help! Stock valuation is really helpful to determine what stocks you should buy. Stock valuation can be understood as the value of stock you place on it, on the base of its price in the market and the company’s earnings. When a stock’s price is higher than its worth, it is said to be over-valued. Similarly, if the stock’s price is lower than its actual worth, then it is under-valued. Under-valued stocks are the ones you need to pick! Precisely, the factors contributing to the choice of a stock are the price/earnings ratio, growth of overall earnings, dividends, returns on equity, market cap and the relative strength of a company. The company’s cash flow statements, income statements, and the balance sheets will help you understand the above factors. You will also need to consider which of the stocks are private or public, and also if a company is buying back its shares. Calculating the Price/Earnings ratio (PE ratio) can seem too technical, but is not very difficult. The EPS or Earnings Per Share is the net profit of the company divided by its number of shares, which indicates the performance of a company. So EPS=Net Profit/No. of Shares. The PE ratio of a stock is its market price divided by its EPS, indicating its value assessed by the other stockholders. So PE=Market Price/EPS. Lastly, the PE ratio is compared to the growth rate using PEG ratio (Price Earnings Growth ratio). The PEG ratio is the PE ratio divided by the growth in EPS. So PEG ratio=PE ratio/Projected Earnings Growth Rate. Finally, the stock is not over-valued if the PEG ratio is less than 1.rnIf you think you cannot spare that much of time and energy on the study, select a reliable online share market broker. He will provide online trading facilities along with the necessary information on his website. He would ensure you don’t make any bad investments. But you should decide beforehand as to how much brokerage fees would you like to pay for his services. It should not eat up your overall returns!