The world of buying and selling stocks can be confusing to the first timer, but like anything in life, with a little education and dedication, you can make it possible. Think about the first time you drove a car, and you probably had no idea where to start! You took baby steps, you learned the ropes, and look at you now! So, what is the first step to getting started?
First things first, you need to open a stock trading account, because this will be the entity through which you buy, sell, and conduct all your trading transactions. You can’t move into this world without a trading account, but the good news is that they’re easy to get and it doesn’t take a rocket scientist to set one up!
Investors and analysts talk about price movements all the time. However, knowing the stock price, out of context, gives you very little information about the health of the company in which you’re considering investing. You need to look at a variety of factors to get an accurate understanding of how a business is doing. Let’s look at some of these.
Outstanding Shares – is the total number of shares in circulation for a company and is held by the company’s investors. These numbers are used to calculate key metrics like Price to Earnings ratio and Earnings per Share.
Dividends – is what a company pays to its shareholders, usually once it reaches a level of maturity that it is stable and profitable. When a company is growing, profits are typically reinvested into a company, and so its shareholders would not be paid a dividend. Instead, they’d benefit from a rising share price, in theory. Once growth stabilizes, a company would typically reward its shareholders by paying them dividends. You would receive a certain amount for each share in the company that you owned. You can then choose to reinvest your dividends to get more shares in that stock, or you can just take the cash.
Earnings Per Share – is the money that a company earns per share of stock. It’s calculated from a company’s net income minus dividends on preferred stock divided by the average outstanding shares.
Market Capitalisation – will give you an idea of the size of a company. It’s calculated as the share price multiplied by all outstanding shares.
Price to Earnings Ratio – Abbreviated to “P/E,” this is a company’s current share price divided by its Earnings per Share (EPS). This figure will show what investors are willing to pay per dollar of earnings and is used as a tool to determine how much a company is over or undervalued.
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Disclaimer: This article has been prepared solely for information purposes. It does not constitute an investment advice, solicitation, offer or personal recommendation by Mashreq, or any of their related parties to buy or sell any securities, product, service or investment or to engage in or refrain from engaging in any transaction, particularly, in any jurisdiction where such an offer or solicitation would be illegal. Neither Mashreq nor any of their related parties warrant the accuracy of the information provided herein and views expressed in this article reflect the personal view which does not take into account of individual clients’ objectives, financial situations or needs. Investors are required to undertake their own assessment and seek appropriate financial, legal, tax and regulatory advice to determine whether such investment is appropriate for them in light of their experience, objectives, financial resources and other relevant circumstances. Neither Mashreq nor any of their related parties accept any liability whatsoever for any direct, indirect, consequential or other loss arising from this article and/or further communication in relation thereto. Mashreq do not accept any obligation to correct or update the information in this article.