What You Ought To Know Before Investing In Stocks

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Have you had the lofty ambitions of owning stocks in publicly traded companies? If the answer’s yes, there are a few items you should be aware of. You have probably watched a cliché Hollywood movie of a guy owning stock retiring before he’s 30, right? Well, there are a lot of factors to consider before getting there.

For starters, you need to figure out whether you’re getting a fair deal on the cost of the shares. On top of that, you need to understand differences between public and private companies. These are not the only factors to consider before buying stock, here are a few more:

Company’s expertise

From the wise Warren Buffet to the average stockbroker, each one knows what the company they’re investing in does. You would be foolish to invest in a company you barely know of. Your first action should be to look at the company’s website and figure out what they do. Since you’re just starting out, I would advise you to stick to stocks of an area you understand.

Profitability

By law, publicly traded companies are required to publish their book of accounts to the general public. You are able to access this information on their website or through newspapers that publish this information. Once you access the information look at the company’s profitability.

As a rule of thumb, a profitable company has a higher probability of return on investment for you. Payment of dividends is easier for companies that are making profits.

Competition

If the company you plan to invest in has a monopoly on the market, you have a high chance of success. Monopolies can charge customers however much they want since there is no one to challenge them. On the flip side, if the company you plan to invest in has lots of competition in the industry, chances of success diminish.

Backing a company with minimal competition increases chances of success on your part. Who knows you could be on your way to early retirement?

Innovation

Any stock broker working during Apple’s initial public offering (IPO), will tell you this is the one that got away from them. Why? Apple started trading at $8 per share at the time. The clamor to buy its share was not high then. Most investors who bought the shares sold them after a while since there was no growth in the stock price.

However, that soon changed due to Apples iPhone. It revolutionized the phone industry in a major way. This led to a huge spike in Apple’s shares. As I write, Apple’s shares are currently trading at $144.12 per share. A whopping 1,800% increase in price. Simply put, you should look to invest in companies that are innovators. A healthy bank balance will follow you in no time.

Wrap – up

Investing in stock is not rocket science. A simple understanding of the factors listed above will guarantee you the back the right horse. In no time, you will have a house on the beach and a supercar.