Make Money In Stocks

If you are an investor, it’s likely that you take many different things into account when researching a company. You might research a company’s past performance, its financial ratios, competitive position, product lineup, and many other factors that could potentially contribute to its success or failure.

Let’s assume you’ve found a company that you’d like to invest in. After doing your research, you can see that it is strategically positioned with a competitive moat, has a great product lineup, has been extremely profitable, and has a strong balance sheet.

Congratulations! You’ve already finished the difficult part of the process. But now that you’ve decided that you like the company, how can you determine if its stock is priced reasonably? You’ve just stumbled upon one of the most fundamental questions of investing.

Timing is one of the most crucial elements of investing, and I would venture to guess that most experienced investors would say that it is the most difficult part. After all, isn’t the goal to buy a stock when it is a good value and before it increases in price?

As Warren Buffett says, “If a business does well, the stock eventually follows”. By this, he means that if you buy a stock in a company at a temporarily low price, it’s not clear exactly how long it will stay at the lower price, but its price will eventually follow the company’s performance.

But how can you know if a stock is a good value, or at the very least, priced reasonably?

There are many valuation methods that investors use to calculate stock value. We will focus on one of them. It is called the intrinsic value calculation method, and involves estimating the value of a stock based on its projected earnings and dividends.

Most investors are concerned about a stock’s earnings, and more specifically, its earnings per share. This is because most investors like to see that an increasing amount of a stock’s earnings in relation to his or her stake. As the amount of earnings per share increases, the more likely it becomes that the company will increase its dividend.

It’s not an exact science, but the process of calculating intrinsic value has three main components. Step one is to conservatively estimate how much a company will earn per share in net income and dividends over your investment horizon. The second step is to calculate a future stock price by how figuring out how much investors are likely to pay in the future for the earnings that you’ve estimated.

Finally, once you have estimated the future value of the stock, you can then find the present value of the future stock price that you have calculated based on the estimated ROI and your investment time horizon.

Currently the share market is in negative but still there is no need to panic because there are some rules to survive in the bear market and these rules would help in returning back to its original position quickly.

Sorry to say, but there are many investor who just could not resist the attraction to experiment in the market, as these investor believe that they can earn good profits because of the short-term price movements. However, there would be some good deals as well but it would be very difficult to recognize and could also give very painful rewards in a bear market.

Bear market as known to everyone particularly to the investors that it is completely different to bull market, not only in terms of price movement but also there are other differences as well that includes:

1. Time Factor:
Bear markets show slow movement of prices provided it is not activated by a crash like the October, 1987. Generally, the price movement in the bear market is slow and reduces gradually.

2. People become poorer:
In bear market there are very few investors who would have the funds and would be willing to invest. Besides broker no one would be interested in trading because the earnings of brokers would have been dried up.

An investor needs to change his mindset if he wants to survive in a bear market, particularly if the bear market has come up after a long-run bull market when everyone would have invested their money on stocks had yielded good returns.

3. Stay happy even if your investment yields low returns
It is the time when an investor earning zero return on his investment must be satisfied because he is better than those who are having negative returns on their investments. It is the time when people used to see their value of investment and stocks falling.

4. You must have cash in hand:
Since most of the investment would give negative returns therefore you must have cash in hand in such time of crisis.

5. You must have diversified your portfolio before bear market or else it’s too late:
It is important that you have diversified your portfolio and by doing this you would have reduced your risk, but if you have not done this until the bear market is reached, then it is too late now.

6. If you have cash, keep it with you:
Many brokers would suggest investing in the market and will say that the market is going to get better, but remember that they are thinking about their own personal fee therefore, it is a better idea to wait and enter the market when others have started investing.