Now that the stock market has recovered from the bearish declines seen in 2008, more and more investors have grown confident enough to start putting their money back into equities in the hope of achieving long term gains. In the last 12 years I have been covering and investing in the central stock benchmarks, these are some of the strongest moves I have witnessed. But it is important to keep some essential facts in mind, as this will help to avoid needless losses that could otherwise be avoided. Here we will look at a few tips for those looking to capitalize on expected movements in the stock market.
Understanding Sectors and Market Cap
Of course, not all stocks are the same and typically these assets are divided by either industry sector or market capitalization, which is essentially the size of that companies value. Small cap stocks have a lower total market value than a large cap stock, and in many cases investors will view larger cap stocks as being more stable and reliable investments. The upside to investing in smaller cap stocks, however, is the potential for extra growth. So, it is important to have a good sense of your investment goals and overall risk tolerance before deciding on which types of stocks to buy. it is also important to understand the stock sector you have selected. Are you looking to gain exposure to tech stocks or the energy sector, healthcare of bank stocks? These are additional questions that must be considered before any stock purchases are completed.
The Importance of Earnings
In order to make money in your investments, you will need to buy a stock before or its value increases, or sell the stock before its price drops. “The ability to accurately forecast movements in stock prices,” said Kris Alban of InvestingIQ , “depends largely on the earnings performances posted by the company.” Each quarter, companies will release their most recent earning performance and make it available for its shareholders. Stronger earnings are generally positive for stock prices. If the earnings report is a disappointment for investors, the price of the stock will usually drop. In any case, it is highly critical for investors to have some sense of where a company’s earnings are, and where they will likely be in the future.
Without this, investing in a stock is little different than simple gambling. This is the incorrect approach, however, because the process of investing requires better odds than a 50/50 flip of a coin. The only way to effectively turn the probability in your favor is to educate yourself about the specifics of the stock, and it can be argued that the most critical area can be seen in corporate earnings. For those with short term investment perspectives, earnings might be less important as prices tend to be driven by news events and changes in sentiment. But for those with a longer term perspective, it is essential that you have an understanding of the company’s ability to generate revenues and manage its finances. These are some of the factors that must be considered before new investors make the decision to buy or sell any stock.