Stock investing is the trading of equity securities that represent a part of ownership in a corporation and the right to claim a share of the company’s assets and profits based on the proportion of shares an investor has. Therefore, in order to invest more effectively, investors should understand the following important points before investing in stocks of any companies.
Potential of Company
Investors should look for companies that have high market competitiveness and profitability and a great level of potential for long-term growth.
Quality of Business
Before investing in stocks of any companies, investors should consider their quality of business that can be measured through the composition of the company management, corporate governance, results, financial statements and ratios.
Stock Market Value
In addition, investors need to look at price-to-earnings (P/E) and price-to-book value (P/B). If these two ratios are lower compared to companies in the same sector or below 20, it means that the stocks have a good market to trade.
Investors should also look for high liquidity stocks, which refer to stocks that can be quickly traded on the market. Higher trading volume indicates that the stocks have higher liquidity.
Lastly, investors need to look at Dividend Yield, which is used to measure an investor’s return on investment, using the ratio of dividends per share and current market price.