The lowdown on Stock Markets / A Primer on Stock Market Investing
The most common parlance used in business and financial sectors worldwide, is perhaps ‘the stock market’. The frenzy wrapped around this phrase has an almost obsessive zeal that hogs TV news channels and boardrooms alike.
Stock market performance is measured by various indices, like the Dow Jones (DJIA), S & P 500, Wilshire 5000, Nasdaq Composite Index and the Russell 2000. However the DJIA reigns supreme as the ultimate indicator in commerce, industry and national policies.
Why you should understand the stock market
The stock market outcome at the end of the day, has plenty of bearing on everyday business and commerce around the world. All it needs is a whisper of the ‘Dow’ dipping or rising, and lo! an entire series of events are unleashed the world over in its wake. Share markets become volatile, commodity markets turn shaky, oil prices follow the Dow faithfully, while Government policies and business deals are postponed or closed in a rush. It is a butterfly effect that trickles down to the ultimate consumer, you,
Find your own investing comfort zone
As an investor, you need to know why you are investing. It is something like training at a gym. Unless you know your goals and take periodical reviews, it will be fruitless or even risky.
Are you investing for retirement? Then you would think long-term with a judicial investment mix. On the other hand, if you are planning to invest to achieve a financial goal like buying a BMW, you may want to pay for this with your dividends. This means coming up with a suitable investment strategy for higher yielding investments.
Profiting in a post recession economy
Although the market has recovered from the 2008-2009 debacles, lessons need to be learned. A diversified portfolio, liquidity in CD or money market accounts to take advantage of good investments at fire grade prices, and knowing when to sell and when to hold are time-tested modules.
Lessons learned from industry stalwarts like Warren Buffett, whose philosophy lies in value-based investing, can help you profit despite recessions or downturns. The yardstick used by Buffett, is investing in stocks based solely on the intrinsic value of the company, i.e. a consistent ROE, lower debt-equity ratio, rising profit margins and comparatively wider eco moat, fFurther comparing with current market capitalization, or total worth..
Become your own stock analyst
Stock market indices, albeit mercurial, can only be understood vis-à-vis its cause-effect factor. So they need to be studied and analyzed, with short-term, mid-term and long-term perspectives, as well as benchmarks of strong company performance.
Trends to watch
While there is no way to know which way the market will go, with the current stats of high unemployment and high personal debt, the Government’s budget deficit is rising, which requires some time-tested strategies to see you through any possible environment of recession or rising interest rates.
Best stock defence comes with big companies whose major markets are outside U.S., who do not need a market rebound to perform well or consistent performers like gold and silver.
While U.S. stocks are currently neither very high, nor low, those looking to invest outside U.S., emerging markets of Eastern Europe, China and India are the markets to watch.
Prepare for rising interest rates by balancing risks, refinancing homes, and increasing bond portfolios. Most importantly, strengthen your dollar position, for the dollar usually gains momentum against other currencies in a high-interest environment.
Knowing the right time to sell your stock, requires analysis of any structural problems within the company, sudden executive stock sell-offs, hostile bids, decline in earnings or markets, a high P/E ratio or debt-equity ratio, falling gross margins, dividend cuts or cancellations.
While buying gold bullion and stocks in gold mining companies are good ideas, gold ETFs offer diversification and low investments. However if you want to profit from rising gold prices, then the futures market is a good option.
Companies to focus on
Gold mining companies, consumer durable companies with markets beyond U.S., companies that are prime raw material providers, technology and online companies that have consistently performed well and upgraded itself.
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