When making an investment it is imperative to do your research ahead of time and analyse whether the investment vehicle you are considering is a good investment opportunity for you. While all investments involve a least a certain degree of risk, taking the time to do your research and analyse the options based on information available to you can help to reduce your risk as well as help you to understand the inherent risks you do face. A well informed decision is always a better decision.
First, take the time to not only find out the current share price but also the financial well-being of the entire company. In many cases the current share price may not tell you everything you need to know in order to determine how the company is doing.
Without taking the time to do this kind of research you could very well finding yourself in a situation where you have overpaid for a stock. In order to prevent this from happening, you need to analyse the market cap of the company. This is the price of the outstanding shares of the stock after it is multiplied by the price per share that is quoted.
So, if a company had one million shares that were outstanding and a stock price of £25 per share they would have a £25 million market cap. When the market cap is compared to the profit of the company, it allows you to put into perspective whether you may be overpaying for a stock.
It is also important to find out how the company is doing in terms of per share growth. It’s usually a good sign if the company is buying back shares because this means there are less shares to be spread out among the total investors. The remaining investors will be able to take advantage of higher returns because there are fewer shareholders to share them with.
Consider how much time you’re willing to put into the stock. Buying stock in a company is really a strategy that is better utilised by individuals who are willing to go the long haul and not those who are looking for a quick exit strategy.
Finally, don’t forget to analyse your own reasons for investing in whatever company you consider. Don’t allow yourself to fall into the trap of investing in a company simply because you admire the services or products marketed by the company. A sound investment should be based on the management style of the company, profits and current price not dictated by emotion.