Monday, December 17, 2007

Questions to be asked before buying a stock.

by Sorina

The reason, which makes every person decide to invest, is to multiply the value if of his money, in a certain period of time, in a certain rhythm and minding certain risks. Settling a winning target over a time interval is subjective, but one has to take into consideration the conditions of the market he is operating on, and the market’s potential also to be able to come up with realistic expectations and according to this to decide upon a strategy to follow.

There are a couple of categories of question we have to ask ourselves when trying to decide if we should invest or not.
One of those questions must be the following:

“What is the profit limit I should decide upon? Is an annual profit superior to the interest rate satisfactory? Or am I going to settle for profits like 30%, 50%, or even 100%?”

The profit purpose for our investment is the actual amount of money our stocks return as profit. Of course the profit factor can gain negative values at those times our stocks decrease. Maybe for one of the company we have lost 10% of the total investment overall. But if on all others we made profits, it is possible for that 10% lost to be covered and exceeded by winnings. We must take a moment and think about our purpose. If we only want to make an annual income just a little greater that the interest any bank would give us for our money, then the task is simpler. We must find in this case companies with a solid stability factor, known companies that are expected to be successful. Those companies will have a low risk factor but they will also bring just a little profit.
For those who want great quick profits it is a lot trickier. You have to really know what you are doing and learn the market by heart. To predict an outrageous growth in a stock you will have to work hard and assure yourself you have calculated all variables before making your choices.

Let’s have a look at the next questions that should be asked:

“Why am I buying a stock? How do I know the price will go up?”

Whenever buying stocks, you must know why you have chosen that specific one. Don’t choose it just because you heard it is good and it will bring a profit. Reflect upon that and study the company, find out for yourself if the rumors are true and trust your better judgment.

“What is the time limit I have in mind? Am I expecting for the price to go up in a month? A year?”

If you are planning to make some easy money and earn your profit in a month’s time then invest in an ascending company. Of course you must find the exact point it starts climbing and consider all possible fluctuation. If you are willing to make a late fat profit, then again solid companies should be picked.

“What is my risk profit? How will I react if the price goes down with more than 10%? What if the price stagnates over a period or time? Will I sell or wait?”

These questions only depend on your personality and stress resistance. If you are losing money you must not panic. Research further into that company and predict future fluctuation. The same goes for stagnation periods. Proper research and time will provide with you the answers.

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