Fundamentals of Successful Equity Trading
Now that the economic data coming out in the press is starting to look brighter with each and every day, a lot of people may feel that now is the right time to start investing in equities. Trading successfully is never easy, but following these basics can certainly help.
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. Know the debt-to-equity ratio for the security in question. This ratio allows investors to determine how much debt a company owes for every dollar in equity they own. The higher the ratio, the more debt the company has to repay. In difficult times, debt-to-equity can often predict solvency issues. Since this ratio will vary from industry to industry, make sure that securities are compared within the same industry, otherwise the comparison is worthless.
3. Know what Analysts say about the security. Most publicly traded securities will be reviewed and rated by companies that trade in that security. Recommendations in the form of a Buy, Hold, or Sell recommendation are often made. Understanding what professional analysts think about the security can help confirm or refute an investor's independent research on a security.
These three tips are starting points for many investors. Although the list is nowhere near being all-inclusive, investors who take the time to find this easily available information will find they are making smarter trades over the long-term.
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. - 23217
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. Know the debt-to-equity ratio for the security in question. This ratio allows investors to determine how much debt a company owes for every dollar in equity they own. The higher the ratio, the more debt the company has to repay. In difficult times, debt-to-equity can often predict solvency issues. Since this ratio will vary from industry to industry, make sure that securities are compared within the same industry, otherwise the comparison is worthless.
3. Know what Analysts say about the security. Most publicly traded securities will be reviewed and rated by companies that trade in that security. Recommendations in the form of a Buy, Hold, or Sell recommendation are often made. Understanding what professional analysts think about the security can help confirm or refute an investor's independent research on a security.
These three tips are starting points for many investors. Although the list is nowhere near being all-inclusive, investors who take the time to find this easily available information will find they are making smarter trades over the long-term.
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. - 23217
About the Author:
Find out more about Bond Funds as well as Investment Strategy at the MutualFundSite.org.
posted by X - Men @ 7:03 AM
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