The Essential Elements To Consider While Investing A Stock

The Essential Elements To Consider While Investing A Stock

A trader doesn’t become a successful trader in his very first execution of a trade. It takes time, even a decade to become a successful trader. And, being successful doesn’t mean earning a constant return without any loss. A trader is said to be successful in trading when he has an explicit knowledge about trading methodology, the type of stock to invest, where and when to invest, time to enter and exit trade etc. Many factors need to be considered to become a successful trader. With the invention of the automated trading robot, it is now easy to become a successful trader within a few years of trading experience.

Although the trading methodology, analysis, and timely execution determine your profit, the primary factor in investment lies in choosing the right stock for investment. Majority of investors fail to choose the right stock for investment. The impact of this action results in a loss. Every investor must execute proper research before investing in any stock. One must think beyond before entering and executing the trade. Let us learn the essential elements to consider before purchasing any shares.

1) Information: Never purchase a share if you don’t have overall information about it. Some stocks may be new to the market and lack information. In such scenario, do some groundwork to find out the future value, the growth, the product the company deals, marketability of the product, the services offered and the total number of employees. With the help of search engines, it is easy to find any information about any company. Moreover, most of the data is made available to the public on the company website. Read about them and have clarity before investing in any share/stocks.

2) Price-Earnings Ratio: Commonly called as P/E ratio is the ratio of the price per share to the earnings of the company. P/E ratio of a company can be found by comparing the market price of the stock to the past earnings. When the P/E ratio is lower, one needs to give a thought about investing in such a company.

3) Beta: Beta represents the volatility of the particular stock. It explains the rate of movement or the price fluctuation of a share over the specific period. In general, this period would be 4-5 years. Higher Beta represents more price fluctuation resulting in higher risk and vice versa.

Besides the above, the other element that an investor needs to consider is the dividend that the company promises to pay to every investor, the chart history etc. It is essential that an investor analyze all the above elements before investing to earn a decent return.