Investing in stocks can be done in many ways. Investors can buy individual stocks or use mutual funds with access to hundreds or thousands of different stocks. The strategy to use for stock investing will be dependent on various factors. This will include any returns and financial results that are expected. One of the most important aspects to know is how to properly analyze stocks.
The most rational way to value stocks is to perform a fundamental analysis. This is when an investor is looking at the value or worth of a company and not the value of the stock. There is per-share value that is used to determine the value of a stock in relation to the value of a business or company. However, an individual investor can also look at other factors when investing in stocks.
One common type of investment strategy is income investing. This is when an investor buys a stock that pays a dividend. There are also many types of mutual funds which may also pay a dividend. Dividends are a great way option for anyone who is looking for a passive investment strategy. One aspect about a dividend paying stock is the company may be in a slow-growth industry. This often means the value of the stock is generally stable. Investors often look at real estate investment trusts and utilities which will have a high-dividend yield.
Another aspect of stock investing is screening. This is a strategy where an online tool is used to filter a set of stocks based on specific criteria. This can include dividend yield, P/E ratio, and other factors that can be selected. A stock screening strategy is a great way to determine if certain stocks offer the results an investor hopes to achieve.
Many investors look at the size of a company when deciding what stocks to purchase. Many stocks are separated or categorized into three sub-sets. There are small-cap stocks, mid-cap stocks, and large-cap stocks. Small-cap stocks are generally companies with a value less than $2 billion. Mid-cap stocks will be companies with a value between $2 billion and $10 billion. Large-cap stocks will include companies with a value over $10 billion.
Another category of stocks for an investor to consider is micro-cap stocks. This is a newer category of stocks that have a worth that is below $250 million. Many companies on the stock market will be in the micro-cap or small-cap categories.
Stocks with exceptional growth are often targeted by momentum investors. These stocks will routinely beat or outperform analyst estimates for revenue and earnings. One aspect about continued growth is a stock may reach a value where it is seen as too high for an average investor. This is when a company is likely to conduct a 2-for-1 stock split. A high-growth company that announces a stock split means there is an opportunity to invest in a stock at a reduced price.
Any type of stock investing strategy will require proper research. There are many elements that need to be considered before making any type of investment.