Let's say that a company's stock trades for $100 and that the company has earnings per share (EPS) of $6.50 over the last 12 months.
We can calculate a trailing ("last 12 months") P/E ratio for that stock by simply dividing the stock price ("P") by the EPS ("E"), so 100/6.50 equals about 15.
We can say that this stock has a TTM P/E (trailing 12 months price to earnings ratio) of 15. Historically that is a pretty good average P/E for stock or for the stock market as a whole.
MORE IDEAS FROM A Beginner's Guide to the Stock Market
A dividend stock will usually make a cash payment into your brokerage account every 3 months. Works well as you can take the cash from a dividend payment and use it to buy more dividend stocks.
A dividend yield is how much money you make yearly compared to the share price (see image): If you paid $60/share and get $1.8 in dividends/year you have a 3% yield.
Usually, yields should be better than interests on savings, but as opposed to a bank account, the value of the stock could go down.
Popularized by investors Benjamin Graham & Warren Buffett, value investing is about buying something for less than it is worth. It's based on this idea that you can find undervalued companies (companies with low P/E - price per earnings). It's hard to do it these days:
Risk no more than 1% of the trading account on each stock trade.
Let’s say that I am trading a $100,000 account. I will risk only 1% of my account, or $1,000. If I enter the stock at 100 and the 50-day moving average is at 95, that means that my risk is 5 points on the stock (100-95). In that case, I should only buy 200 shares of stock. If I buy 200 shares of stock, and the stock falls 5 points, I will have lost $1,000 or just 1% of my total account size.
The key to making a lot of money is not losing a lot of money in the process.
Every stock has a bid price and an offer (or "ask") price. “You sell to the bid, and you buy from the ask.”
When you are buying a stock, you can use 2 different kinds of orders:
Find stocks with the following characteristics:
You can scale out of a profitable position. Sell 25% of your position every Monday for 4 weeks in a row.
Investing is not magic. Remember that ...
If you can stick around long enough and keep learning, you will be successful at this game. Learn the basics and practice.
An index is simply a collection (or "basket") of stocks. An ETF allows trading an index just like a stock. The best-known indexes are:
Indexing is widely considered the safest and best way for most people to invest.
Active investing strategies means picking your own stocks and building and managing a portfolio. It's hard and few people do it well.
Passive investing strategies mean investing in an index. When indexing, most people like to invest the same dollar amount of money into an index every month. By buying an index/ETF at different times, you end up getting a pretty good "average price.” This practice is called "cost averaging.”
It's where shares in companies are traded. The most important ones are:
To trade on a stock exchange you need to use a "broker", a middleman: Fidelity, Robinhood etc
I skate to where the puck is going to be, not where it has been
Great companies that are rapidly growing will always trade at high P/E's (Facebook, Amazon etc). Value investors will always tell you to stay away from companies with high P/E's. Ignore them.
Matthew's advice: buy growth stocks that are hitting new 52-week highs, or even all-time new highs. Why?
Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending.
The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.
When it comes to wealth creation in equity market, investing and trading are the two genres of the field. However, investing and trading are very different approaches of wealth creation or generating profits in the financial market. Imagine, today, you and your friend bought equal amount of seeds to sow in your fields but you sold them to someone in a day because you could earn profit. And your friend sowed the seeds and let them grow for a few years till they gave new seeds. He sowed the new seeds and continued this for years and sold a lot more seeds eventually than were bought.
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