The Art Of Investing
Quite a few closely related meanings have been provided for investment or investing in business management, finance, economics, savings and consumption. Investment is defined as the choice of the individual, after detailed analysis, to place or lend money in property, stock securities, or bonds, that have sufficiently low risk and provides the likelihood of giving returns over time. And is something that people have done for hundreds of years.
Investing on the other hand refers to the redirection of resources from being consumed today so that they may create benefits in the future; in terms of earning income or profits. In case of investment, the investor chooses to use the money derived from trading to either create another stock in the portfolio or to lend the original saved stock to another in exchange for either interest or a share in the profits.
The solution to investing, is to have an essential understanding about where to invest, how much to invest and when to stop investing. It can also be said that, finding a company that has excellent financials and brilliant management do not guarantee investing success. Though such characteristics play a vital role in to identify stocks in the portfolio, however, price is the ultimate determinant of the rate of return earned by any purchased asset.
Another important aspect of investing is the per-share growth as compaired to the corporate growth in particular. As a company may have the same profit for some number of consecutive years however it might not have created large returns for investors by reducing the total number of outstanding shares in the form of buy back.
Based of the potential benefits provided by the stock market it is regarded as one of the best avenues for investing money. It is important for the beginner investor to have an understanding about the United States Stock Exchange but also about the International stock market, as these define economies on a global level.
As a new investor, it is important to look at the current share price as well as the price of the entire company. Market capitalization or market cap refers to the cost of acquiring the entire business. It is the market cap test that helps the investors from overpaying for a stock.
Another useful tool to help measure the relative cost of a stock is the price to earnings ratio (or P/E ratio for short). It provides an important standard of evaluation of alternative investment opportunities. Risk is also an inherent part of any investment. There is no exception to rule that the amount of money can be guaranteed without losing atleast some part of what is invested.
As an investor it is important to justify the reason for investing in a particular company. That is, the basics of the company in terms of current price, profits and good management must be the only reasons for investing. The reasoning must also be supported with unbiased financial data and not based on emotional attachment for that company.