Category: Stocks

Stocks are maybe the best way to build wealth. Holding them means that someone owns a share in the company that issued the stock. Exactly this Traders-Paradise wants to explain to its visitors.
The majority of traders trade them, ordinary people are investing in them and they are building their future based on stock quality. If the stock is good, it will increase your capital.
In this category, Traders-Paradise explains what are stocks and why people should invest in them. Our experts’ team explains how to effectively buy an ownership share in the company. You can read what is beneficial, how much you can earn by trading them, and how much by holding them in the long run. Also, Traders-Paradise provides readers a full insight into stocks’ nature, how volatile they can be, why stocks are the best way to build and grow the wealth.
Here we explain what is the primary reason that investors own stock. Just to mention, the returns are potentially great.
Also, we explain how stocks work.
Readers will also find is it better and wise to buy stock in just one company or that could have a negative influence on their investment portfolios. Also, we explain how to structure your stock portfolio when you hold shares of companies from various industries and geographies.

How stocks differ?
Most investors hold common stock, but there are many kinds of them, for example, preferred stocks. Traders-Paradise explains all the benefits from any kind of them, how to profit by trading them. So, here you’ll find trading and investing strategies, all calculations, and methods to evaluate the value of your holdings.

  • Employees Stock Options are What European Startups Need

    Employees Stock Options are What European Startups Need

    Employees Stock Options are What European Startups Need
    In contrast to Silicon Valley,  European startup employees are not known for earning millions from the company’s stock.
    Stock options policies in Europe are a major barrier to the tech growth and that has to be changed. 

    Employees stock options are issued by many companies. For example, startups use them to hire talented they need because they cannot afford to pay them more in cash.
    The situation is especially difficult in Europe where the policy doesn’t give a chance for companies to issue employees stock options. That causes problems for many companies but for the startups, it is maybe the biggest.

    Recently, the campaign  Not Optional published a letter where stated:

    “Without delay, we call on legislators to fix the patchy, inconsistent and often punitive rules that govern employee ownership — the practice of giving staff options to acquire a slice of the company they’re working for.”

    Some European countries started to relax rules on employee stock options. France is one of them, but employees still favor cash.

    This country recently exposes a list of changes to rules on employee stock options to meet a request from French startups. Their aim is to compete with US competitors and big companies in recruiting staff. 

    France is changing a set of rules, for example, the price at which the companies ( including foreign companies) can offer them to employees. The goal is to make France one of the most friendly areas for startups in Europe. 

    Being competitive

    Difficulties in implementation employee stock option rules and availability of capital, are reasons why European have problems to create large tech businesses. That’s the reason for staying behind the US but the EU wants to keep up. There is a strong campaign for changes in employee stock options in Europe now. 

    According to Not Optional, a campaign is supported by 500 European founders and they are lobbying new stock options policy across the continent.

    They recognize employee stock options policy as a major drawback to European tech growth. Due to the problems with the fund-raising, issuing employee stock options can be a great opportunity. Well, recently many countries declared changes, France isn’t the only one.   

    Ireland changed some of its stock option practices, also, the new Finnish government is examining changes on how stock options are taxed. The German Startups Association has started a campaign to lobby for changes too. As a confirmation that employee stock options are on the Brussels agenda – Thierry Breton, the European Commissioner for Internal Market and Services, discussed stock options in Commission hearings.

    Do employees want stock options instead of cash?

    Many European tech employees are, however, at best doubtful about stock options, according to Sifted. The employees don’t have positive responses. Maybe it’s surprising how they have a lack of trust but someone has to educate them, to explain the benefits of having the company’s stock. For that to do isn’t enough just yelling that “we are all shareholders of the company”. It isn’t complicated.

    So, let’s start. 

    Understanding employee stock options 

    Let’s see how the employee stock options work. 

    Companies give stock options through a contract that provides employees the right to buy a set number of shares of the company stock at a pre-set price. 

    The right to buy is commonly called exercise, and a pre-set price is the grant price. 

    There is one important characteristic connected to employee stock options – time, the offers don’t last forever. Employees have a strict period to exercise the stock options before the date of expiration. Also, the employer could require that an employee must exercise the options within a defined period after leaving the company. 

    The number of options that the company could give to its employees is different from company to company. Also, not all employees will get the same number of stock options. It depends on status, rank, seniority. 

    How do they work

    For example, you got a new job at a new firm. Besides your salary, you will receive stock options, as part of the payments. Let’s say you will receive stock options for 10.000 shares of your new company’s stock. You and the company are both obliged to sign the contract that describes the terms of the stock options.

    There will define the grant date. That is the date your options are available for you to buy. This means your stock options begin to vest. But you will not get all of your stock options immediately when you start working for a company. The options vest gradually. That period is known as the vesting period and it can last several years, for example. So, let’s say the vesting period is 5 years. This means it will take 5 years before you have the right to buy all 10.000 shares. But you’ll have access to some of your stock options before those 5 years are up. 1/5 of your options will likely vest each year over that 5-year vesting period. So, after 3 years of employment, for example, you will have the right to exercise 6.000 options.

    But your contract may contain one important part – a milestone. The clause that you have to stay for at least one year with the company to have a chance to get any of your stock options. When you reach the first milestone you will receive your first 1/5 of your stock options. After that, it is possible to get every month some amount of them, usually, they are the same. For example, the rest of the 8.000 shares you’ll obtain in 48 parts each month. 

    But if you leave the company before reaching the milestone for the first year, you won’t get any options.

    How to exercise

    After your stock options vest once, you can exercise them. What does it mean? You can buy them. Until you do that, the options don’t have any value. The price of your stock options is part of the contract mentioned above. That is a so-called strike price or grant price or exercise price. This price never depends on how the company is doing. It will always stay the same. 

    For example, after your 5-years vesting period, you have 10.000 stock options with a strike price of $2. If you want to exercise (buy) all of your options you’ll have to pay $20.000. When you buy all your stock options you are the owner and you can do with them whatever you want. You can sell them, keep them (only if you think the price will go up) but remember, you have to pay fees, taxes, and commissions when you are buying or selling the options.

    There are some ways to exercise your stock options without spending cash. For example, you can make a buy-and-sell action. To do this, you’ll buy your options and quickly sell them through a brokerage. Another strategy is the exercise-and-sell-to-cover transaction. 

    Practically, you have to sell enough shares to cover your buying of all shares and keep the rest. But be aware, your stock options have an expiration date. So, read the contract carefully. Usually, options expire 10 years from the grant date. After that date, they are useless if you don’t exercise them.

    Bottom line

    It is good to exercise options when the price is lower than the same stock on the market. For example, your stock options’ strike price is $2 but the same stock is traded at $4 on the market. Just sell them and make a profit.  It is obvious, if you have some clue or expectation that your company’s stock price will grow, you can hold them as long as you want and sell them at the most favorable moment. It isn’t forbidden to sell them on the market. 

    But you should wait if the price of your company’s stock is lower than your exercise price. In such a case, don’t exercise them because you might lose your money. Just wait for the price to increase before exercising.

  • Risks Of Investing In The Stock Market And Strategies to Avoid Them

    Risks Of Investing In The Stock Market And Strategies to Avoid Them

    Risks Of Investing In The Stock Market
    Investing in stocks is a risky game. On some of them, you can have full or partial control.

    Risks of Investing in the stock market is a necessary part of investing. If investors want great returns, it is necessary to take great risks. However, the greater risks will not guarantee you will have greater returns. So, additional risks will not always bring you huge returns. But if you are long-term-type investors, you must understand that there will be some periods of underperformance in the investments. And you have to be prepared for that and not panic. If you cannot handle your emotions while investing you are likely to have a smaller chance in the stock market. Taking a risk means to have a higher tolerance for risk. Well, if you are not comfortable with it, you will probably make lower returns. But one thing is in your favor – you will never make great losses.  

    Anyway, you must understand that there is a necessary trade-off between investment and risk. Greater returns are linked with risks of price changes.

    So, it is crucial to decide what is your risk tolerance and you have to do so before you enter the stock market.

    What do you want: to protect your initial capital or you are ready for a wild ride with all the ups and downs in the stock market to reach higher returns?
    If you can take a low or zero portion of the risk, be prepared that your returns will also be very low. On the other hand, if some investment generates huge returns, think twice is there some high risk you cannot accept.

    High-risk investments require to hold a position for a long time, not less than 5 years. Do you have a stomach for that? Why the time matter? 

    As an investor, you must have the capacity to hold it longer to give shorter-term issues time to fix themselves. But remember,  higher levels of risks will not always result in high returns.

    There are special risks which investors should be aware of.

    What are the risks of investing in the stock market?

    We will point on some of them. The risk can be a capital loss. Let’s say you picked up some stock of the company with suddenly poor performing and the market recognizes it as negative. The consequence is that stock price could drop, a lot under the price you paid for them. The stock may even end up worthless. Zero! In such a case, the company’s stock will not trade. Moreover, the company may be delisted. 

    Further, there is always volatility risk. Stocks are volatile assets, their price may shift significantly in price in a short time. And, also, there is an exceptional market risk influenced by external factors. In such circumstances, the whole market could decline and the stock prices will be affected too. Also, not the whole market has to decline but the sector could. For example, a specific sector may experience downturns. Well, while some will catch the losses but at the same time, such periods are a great chance to buy stocks at a lower price. You see, the stock market is a zero-sum game. You can profit only when some others lose. 

    Also, the risks of investing in the stock market could come from the nature of the stock. To be honest, the stock price is extremely sensitive to bad news or investors’ sentiment toward some companies. For example, the company issued a poor earnings report or published management changes. The investors may disagree with that and could start selling the stocks. 

    Very specific risks of investing in the stock market may appear if you try to sell or buy stocks at the wrong time. You must have the right entry but more important, you must have a great exit. The last is the hardest part of the stock market but doesn’t have to be. Check HERE.

    As we said, these are just a few risks you can meet while investing in the stock market. The crucial part is to understand what kind of risks you may have with your investments and how you can handle them.

    Strategies to avoid risks of investing

    Frankly, it’s impossible to entirely avoid risks. What you as an investor can do is put them under control. Actually, you can control your exposure to risks to the agreeable level. The risk you can handle and want to take. For that to do you have to know exactly what are you investing in and identify the possible issues all of these before entering the market and buying a stock. When you identify the risks involved you’ll be able to handle them.

    How to manage the risks?

    Firstly, define your investment goals, risk tolerance, and limitations, and plan according to what you found. Invest only in a sector that carries a lower risk than you are prepared to take. Go below your possibilities when it comes to risks. 

    The other solution is a diversified investment portfolio. It will give you good support. Your investment portfolio must contain several different assets. Spread your investments on bonds, utilities, mutual funds, cash, along with the stocks. Never put your whole capital into one single investment.

    Combine them, long-term investment, short-term, but be careful about changes in your fundamental investment. 

    Also, a good decision could be to add derivatives to your portfolio. You can use them as a hedge against the risk. For example, the stock price is dropping, instead of selling them you can avoid losses by shorting futures. Of course, you have to choose futures of underlying assets that match your holdings. The hard part here is the value of futures compared to your stock portfolio. Exchange-traded futures have standard sizes of the contract. Hence, sometimes they will not give you a perfect hedge and you can over-hedge or under-hedge your stocks. 

    The other stock market risk management possibilities

    You can also adopt a maximum portfolio drawdown rule. What does it mean? You have to set limits to the size of the drop in your portfolio value you can allow. In other words, determine how much of your portfolio you can bear to lose. This will decrease your personal ability to make emotional changes at the wrong time.

    Keep your focus on stock price, and the value of an investment. Of course, plan ahead. The valuation is actually the heart of long term risk. Smart investors may have the advantage of volatility if they use tactical asset allocation. Follow their example. That will give you a chance to buy more assets when the prices are low but also, to hold fewer stocks when the prices are expensive.

    Historical data shows stocks purchased while valuations are low, provide higher returns in the long run. Contrary, buying while valuation is expensive, generates the returns below average.

    Bottom line

    Risks of investing are part of being in the stock market. Sometimes, you will need to take bigger risks to reach your goals.
    Learn the risks of investing in the stock market and do your homework. Make choices that will help you meet your investing plans.
    Examine the risk of your investments from time to time. You have to know they still satisfy your risk tolerance.
    Once some phrase appeared, we’ll paraphrase it: Be willing for the best, but act like the worst is coming soon.
    You must be able to shift fast if suddenly something wrong appears. And, never give up!

  • Value Investing Is Coming Back

    Value Investing Is Coming Back

    Value Investing Is Coming Back
    Value stocks have underperformed since the beginning of 2007. But Goldman Sachs and Morgan Stanley claim that they have great potential.

    Value investing is coming back according to data from the last autumn. This granddaddy of all investment types was set up in the first half of the 20th century and it is still actual.

    For example last year, value investing has gotten fired by a typical value sector, energy. Last September made value investors satisfied, as returns of winners among cheap stocks outperformed big companies by a wide margin. The value-stock rally was exciting, unexpected, and fabulous. The past 10 years weren’t good for value investing. Actually, the value stocks were underperformed the growth stocks. They had weaker performances than it was the case with growth stocks. Moreover, some fund managers didn’t want to invest in utilities. What a great mistake! Utilities are the value stocks backbone. Their explanation was the value stocks are too expensive. Really? The fact is that utilities had a great performance last year and those managers suffered in a loss.

    Why value investing is still a good opportunity?

    Historically, they beat Grand Depression, played well during recessions, and inflation periods. Moreover, growth stocks have not become more profitable. So, the value stocks should finally be better. The reason is simple. They are unfairly cheaper. And that’s the point of value investing – finding under-appreciated stocks trading at low prices.

    The stock market analysts found that stocks traded with low P/E and P/B ratios can easily beat the wider market. This opinion is supported by the facts. 

    A historical outlook

    At the time of the financial crisis in August 2007, the S&P 500 index has returned 175%. The total return of value stocks in the US market was 120%. The return of growth stocks was fantastic 235%.  Let’s go in the past more. Almost 20 years ago, value investors were devastated. For example, in 1999 and 2000 were so bad years for the value investing that some value investors had to step out of the market and retired.

    But let’s stay for a while in 2007 and analyze growth investing deeper. What did happen? 

    That growth-strategy outperformance ended with the fall of the dot-com bubble.  Value stocks came out of favor after the 2007 Global Financial crisis. On the other hand, growth stocks are performing remarkably well. Value stocks became unfairly cheap. You can notice that investors are expecting this global trend to continue since the global economic growth is slow. So, value stocks are trading at a discount compared to its more expensive growth peers.

    But, is this discount a reason to invest in value stocks? It looks like that because value investing builds up. Slow economic growth caused value stocks to continue to produce stable free-cash flows. Yes, their businesses have slowed, but not damaged. At the same time, some of the growth stocks become extremely expensive. Moreover, the risk of failure in growth stock investing during slow economic conditions has grown.

    Value Investing continues to make the headlines and not only in the US but also in Europe. We all can witness an increased number of headlines and publications, most recently, on the coming death of value investing. But now, something has changed.

    Value investing is not dead

    Timing the market seems to be difficult for investors. The intraday volatility grew over the last year, therefore, investors prefer not to bet as it will hurt long term goals. But this situation is beneficial for value. The value stocks start to outperform.

    That will be a major market change. Value stocks’ years-long downtrend begins to turn. For some, it may seem a bit strange because investors in more cases neglect bargains. Everyone is trying to catch the major winners, famous companies, expensive stocks. They prefer to overpay some stock because of excitement. Oh, how wrong they are! But as we said, value stock investing is coming back.

    Firstly, value stocks are cheap.

    Value investing is the main principle for equity managers. There is long-term potency to buying cheap stocks over expensive growth stocks. Value investing was attractive over the entire history. Why shouldn’t it continue?
    No one could say value investing is dead. 

    Goldman Sachs predicts a new life for value investing

    Value investing has been decayed after years of underperformance. But Goldman Sachs says there’s still great growth possibilities in this classic factor strategy. And here are some reasons behind.

    Value stocks will come back in favor very soon.

    David Kostin, Goldman’s chief U.S. equity strategist explained that during the last 9 years the difference in valuation of expensive and cheap stocks was wider than ever. 

    Kostin said: “A wide distribution of price-to-earnings multiples has historically presaged strong value returns. However, a rotation into value stocks would require a sustained improvement in investor economic growth expectations, potentially driven by global monetary policy easing.”

    The renaissance is coming

    Value investing has gone out of favor particularly because the economic expansion gets stretched longer. Value brands continue to falter due to modest GDP.

    But this course could start to change for value stocks. In the US an easier monetary policy from the Federal Reserve could increase growth expectations. Also, a rate cut could support the economy additionally. Bankers announced that possibility. Also, we already saw signs of resilience in US value stocks last September. Analysts predict that value stocks could finally enjoy a rebirth in 2020. Value investing means buying stocks that are trading below their value in the hopes of notable profit when the company comes into favor. 

    By default, value stocks have underperformed since the financial crisis. The investors have shifted into more energetic growth stocks, for example into technology. But last autumn, growth stocks were trading at high valuations and they became too expensive. In the same period, value stocks have shown important strength.

    From October last year, the Russell 3000 Value index has dropped 2.4%, and the Russell 3000 Growth index has experienced a worrying 7.1% reversal. 

    Yes, growth stocks had a bounce, and outperformed value stocks. But there is some rule pointed by Morgan Stanley’s analysts. The markets are in the process of a regime change. That means the investors’ willingness to buy growth stocks will decrease as interest rates rise.

    Goldman’s High Sharpe ratio

    For investors assured on value stocks comeback, Goldman has selected value stocks with “a quality overlay.” Do you understand what does it mean?

    These stocks could easily generate three times bigger returns than the average S&P 500 company with similar volatility. It is Goldman’s Sharpe ratio basket composed of 50 S&P 500 stocks with the highest ratios. This ratio measures a stock’s performance related to its volatility. 

    Goldman named the stocks with the highest earnings-related upside to consensus target prices. That are Qualcomm, Western Digital, Marathon Petroleum, Halliburton, Facebook, and Salesforce.

    Bottom line

    Many of the world’s most successful investors hold value stocks. They are buying cheap value stocks and benefit as the companies manage to work better.

    For this to work, the stock has to stay cheap, so the company spends money on tremendous dividends and buybacks. The other option is the company be re-valued at a more relevant valuation, meaning more expensive. That is happening when the market recognizes the previous mistake in valuation.

    For example, take a look at Altria (MO).

    When the evidence about how toxic smoking is, appears to the public and more and more people stopped to smoke, investors had a feeling that cigarette producers will have a problem, the stock valuation was low. Well, something different happened to the company. The fundamentals remained strong. These stocks had good returns and still have. 

    How is this possible?

    The stocks had higher dividend yields and investors reinvesting their dividends. Very good play. Tobacco companies also reinvested. They were buying back their cheap stocks and increased their earnings-per-share and dividend-per-share. 

    Smart investors know that value stocks can outperform most other factors. Some of the cheapest stocks in the market today are banks, oil companies, and so on. Keep it in mind.

    So is value investing coming back? Do we really need to think better what the definition of value is?

  • Trading Exit Strategy App – Where to Find It

    Trading Exit Strategy App – Where to Find It

    Trading Exit Strategy App
    Here’s a look at the best trading exit strategy app to avoid your losing trades

    Do we really have the trading exit strategy app? Only when you can assure yourself that you are not holding a wrong position you can be confident that you hold a good trade. Every single trade must have its own exit strategy, that takes into account both price rises and price drops. In other words, risk management. So you MUST plan your exit and you must have the best trading exit strategy that is possible.
    Well, how to create a good risk management system? How to choose a good exit strategy? How to determine it?
    That’s science. It is difficult and mostly depends on your feelings which is the riskiest part of every trade. 

    Identify when to take profit from trading

    Having an effective trading exit strategy app means to have the opportunity to identify when to make a profit from trading. Sometimes you will close your position too early and miss the bigger profits, other times you may lose if you stay too long on position. 

    When is the right time, how to know when to take a profit? 

    It is crucial, before entering the trading setups, every trader MUST have an exit strategy. It isn’t a matter of traders’ will, it is a matter of protecting from losing trades. 

    If you don’t have a trading exit, you’re trading without a strategy, you’re trading based on guesses or emotions. So, the chances of making a loss instead of profiting, are more likely. 

    What is the best trading strategy?

    Basically, a trading strategy is a plan of buying and selling in the stock markets. It is based on rules that have to provide successful trading and make a profit.

    When you are trading the stock market, you have to make a decision to buy or sell an asset, or to stay on the position. To be able to make a decision you’ll need information.

    Trading strategies MUST assist you to simplify the process of analyzing all information and making decisions. 

    The stock market works simply. It is like an auction house. It provides to both buyers and sellers to set prices and make trades. The stock market operates thanks to a system of exchanges but it is a zero-sum game. Meaning, some traders have to lose, so you would have a chance to make a profit. There is no other way. Any trade has only two ends: loss or profit.

    What is necessary to identify when to take profit from trading? 

    You should consider at least two exits: stop-loss and take-profit in your trading exit strategy.
    Stop-loss is the point where you exit the position when the trade isn’t going in your favor. Take-profit is the point where you exit the trade in profit.

    Getting out of losing trades

    Losing trades is a reality. They are coming together with winning trades. Yet you are never sure is your trade losing or winning one. This can discourage many traders and they may give up.
    But, wins and losses don’t need to come randomly. You don’t need to trade like that.
    Yes, the stock prices may go up and down and nobody knows exactly why the stock price makes changes. The stocks are volatile and their price may extremely and rapidly change.

    That’s the reason to have the best trading exit strategy app and keep the investment safe.

    Traders choose different strategies depending on the time frame of the trade and how long they want to keep the trade opened.
    Today, if you want to trade successfully, you will need to pay for hardware and software to use available strategies. But still, you have no guarantees and (this is more important) you don’t have any chance to check will your chosen strategy end with loss or in profit.

    Reasons for seeking the trading exit strategy app

    If traders have a good entry, it is more likely to reach the stop-loss or take-profit target faster. That will give you a chance to make another trade. And another, and so on.

    But, if you don’t have a good entry you will need time to see the result. That may hurt your profit. Of course, some winning trades will take a bit of time to develop.

    When you have a good entry you may increase the number of trades you want to take and you will have more advantages. To this point, everything sounds logical.  But how to avoid premature trading exits and losses? 

    For all traders, this should be the last warning! 

    When it comes to the exit strategy the things are not so clear to many people.  Having the best trading exit strategy (as much as it is possible) is important. Even more than planning for entry. Why? Your exit strategy shows how you have hedged your trade.

    Do you really know when and how to exit the trade?

    Most of the traders think that the entry point is the most important. Yes, it is important without doubts. But are you sure your trade will go in your direction? Do you have something to protect you from sudden price changes? That is the exit strategy. And if you don’t plan your trades you may end up with big losses. 

    If you didn’t think of an exit strategy, here is what you have to do.

    Set Trailing stop-loss

    A trailing stop-loss will help you to manage risk while optimizing possible peaks. By setting a trailing stop-loss you will secure your profits and accumulate more. Firstly, you must set levels for profit and loss. You will do that in a percentage, for example, 1.75% stop-loss and 3% take profit levels. What will the trailing stop loss do for your trade?

    It will close your trade when it has created the set peak and the trend begins to reverse. 

    A trailing stop order means to set a limit on the maximum potential loss but without setting a limit on the maximum potential profit. We can identify “buy” and “sell” trailing stop orders.

    Use time-based exit strategy

    This exit strategy is when you appoint the maximum time you want to spend on a trade. This is a good strategy because if your trade isn’t successful after a given time, the smart choice is to exit the trade. Well, how much time you will give a trade is up to you.

    Time-based exits are good when the trend is moving against you. It is a simple strategy that can help you control your losses.

    Stop-loss/take-profit strategy

    The truth is, there is no other way to get out of the trade than with loss or with profit. The last mentioned is better, right?
    One of the best exit strategies is applying stop-loss/take-profit.

    The goal of stop-loss is to keep you in a trade and limit losses while take-profit will secure profits by closing the trade when the profit target is reached. It isn’t easy to calculate adequate risk/reward ratios for stop-loss/take-profit orders. You’ll need time and effort to master it. 

    For example, how to identify the stop-loss position based on the money you are ready to risk at each trade? Stop-loss totally depends on the money invested. 

    Stop-loss and take-profit work almost in the same way but you have to define their levels differently. To make this more clear, the stop-loss will minimize the cost of the failed trade but the take-profit order will give you a chance to take the profit at the peak of the trade. You have to recognize the right moment to exit with profit.

    The market swings all the time. One positive trend can easily turn into a downturn in a second. You may think it is better to exit the trade with profit right now. Why risk potential earnings? Well, it isn’t a good option. If you don’t let your profit to grow enough and you exit the trade prematurely, you will lose a great part of potential gain. But, also, waiting for too long can be equally harmful.

    The drawback of stock trading apps

    Trading apps that you can find currently on the market are good for some things. They will give you a real-time market data or will help you to find new stocks. Yes, there are some apps for charting but still, you will need to write it down to Excel. Additionally, those apps can be costly and out of reach.

    The majority of stock trading apps you can find don’t give the variabilities in a meaningful way. Moreover, they don’t include one of the most important features for every single trade – examining and testing on where to set a stop-loss and take-profit level and when to exit the trade. 

    But, even if you decide to purchase them, will you have an opportunity to check the efficiency of your strategy? So, they are useless for the execution of your trades.

    You need an effective and accurate exit strategy app

    We were examining almost all apps, spent many years on research to find valuable tools or apps that would give traders a chance to check their exit strategies.
    We couldn’t find any. There was no such app.

    Until now.

    Here is Traders Paradise’s best trading exit strategy app.
    What our app is doing?

    Traders Paradise developed a trading exit strategy app, a unique tool for optimizing the exit strategy.

    This unique and easy-to-use trading exit strategy app will do all the hard work and complicated math operations for you and performs it all on its own. 

    All you have to do is to choose the stock you want to trade. We have a long list of the companies and you simply have to mark any by clicking on the name or to type the ticker name or the name of the company. But HERE you can find the full explanation.

  • Investing In Gold Will Always Be the Smart Move

    Investing In Gold Will Always Be the Smart Move

    Investing In Gold Will Always Be the Smart Move
    Get exposure to gold, it isn’t as risky as some may think and deserves a place in your portfolio.
    Gold can be a hedge against inflation and deflation

    By Guy Avtalyon

    Investing in gold whether own it as a metal, jewelry, mining stock or mutual fund is always a smart decision. This is especially true when the main currencies are dropping. There is one interesting situation that confirms the gold to be the most valuable asset. Gold is a benchmark for national currencies, for example. As the currency falls, gold will rise. 

    So, let’s highlight the chance of gold’s future. 

    Some may say that investing in blue-chips is better. Okay, it is still a good investment, yes. But is there a true potential for profit? Can blue-chips persist in the global market? They are mastodons. We are talking about them with respect but for most investors they are unachievable. 

    What is investing in gold?

    Gold has a possibility for future growth. The “golden standard” is still live no matter what the banks will insist on. It was in the past, it is now, and it will be. 

    Traders-Paradise wants to highlight some opportunities for investing in gold and how to do so. Hopefully, you will find your way.

    Why investing in gold? 

    Gold is respected everywhere in the world because of its value and bright history. 

    Gold’s history started in 3000 B.C but from 560 B.C. gold is used as a currency. The need of the ancient merchants was to use something broadly accepted in order to make trade simpler. Since the gold was universally accepted for expensive jewelry they recognized the potential in gold for valuing their products. And in trading, also.

    A coin with a seal was accepted all over the world as value for products. Since then, this rare metal that comes back, when other currencies don’t work.

    So, we can conclude that gold prices are negatively proportional to equity. Speaking about returns in long-term investments, gold isn’t so good because stocks or funds will always give better returns.

    Gold returns in comparison to assets returns

    Yes, the asset will always do better. But it can be volatile during the time.

    Oh, wait! Gold is a volatile investment too.

    Let’s look at some stats, like standard deviation. What is the standard deviation? It is a degree of how spread out numbers is. In the example of a stock price, it measures the volume of variability and dispersion around an average. It is a measure of volatility, also. Generally, dispersion is the difference between the current value and the average value. The larger the dispersion or variability means the higher the standard deviation. And vice versa, the lower figures are implying less price variability. Investors use the standard deviation to estimate the supposed risk and define the importance of specific price movements.

    During the last five years, the annual standard deviation of gold was 16. The annual loss was about 4%. This means that the chance that gold will give a profit is about 12% and a loss of 20%. That represents a big range and falls into a negative area. 

    If we compare data for, let’s say the S&P 500, we will see that the standard deviation was a bit under 10, for the same period of five years and an annual average return was around 13%.

    Let’s calculate again and we will see the range was between a gain of 23% and a gain of 3%.    

    Is gold volatile?

    But, keep in mind, the higher volatility of gold is the standard, not the anomaly. As an investment, gold is risky. But, something very similar to the relationship with currencies arises.
    Gold and stocks very rarely perform the same thing at the same time. Meaning, when the stock market lags, gold will be doing well. This doesn’t mean you shouldn’t invest in gold. Investing in gold ONLY is a risky position.
    This synergy between stocks and gold is where gold is a good investment. Honestly, gold can be a very safe investment. 

    For example, the relationship between the entire stock market and the midcap over the past 10 years is about 0.98. Gold has a relationship with the stock market of 0.04 during the same period. Basically, gold creates its own game.

    Is gold a good hedge against inflation

    Historically speaking, gold has been a good hedge against inflation. 

    The price of gold will always increase along with the increased cost of living. If we consider how gold prices performed over the past 50 years, we could see that its price has been rising while the stock market has been falling during the inflation periods. Do you remember the relationship between gold and currencies? 

    When fiat reduces its buying power during inflation, meaning, you will need more units of money to buy anything. Also, gold is much more valued in money, and, therefore, gold price tends to rise. Furthermore, gold is a good store of value. People are more willing to buy gold when they think that their national coin is dropping in value.

    But, should gold can be used as a hedge against inflation? In short, according to the mentioned above, yes. 

    Investing in gold as deflation protection

    When the business operations decrease, the economy has excessive debt, and prices decrease too, we are speaking about deflation. The full deflation we saw last time was the Great Depression (1930). Part of deflation happened after the 2008 financial crisis. But it has happened in some parts of the world.

    During the deflation (Great Depression), the buying power of gold rose while other assets’ prices fell. The most secure place to put cash in that time was gold. Today, we have a similar situation in some parts of the world.

    A portfolio plan

    Let’s explain this in the example from the recent past. During the recession from 2007 to 2009, the S$P 500 Index dropped 36%. But the gold price increased by 25%. Yes, it was extremely. But, can you see how good is to diversify your portfolio by adding gold? Even with the knowledge that gold is a volatile investment. 

    When you add the gold in your portfolio you will have that one that performs differently from the others. Gold will always act differently from bonds and stocks. That’s why many investors add gold to their portfolios. The recommended part is 10% of the overall portfolio in gold. That will create a good balance and good diversification of your investments. Moreover, you will provide the safety of the complete portfolio. By adding gold you will reduce volatility and risk. Moreover, investors are investing in gold as a safe haven during political and economic difficulties.

    Investing to have the dividend

    Gold stocks are suitable for growth investors, but a lot less for income investors. That is because the gold stock will change the prices along with the gold prices. But you can find well-managed mining companies, profitable even when the gold prices are falling.
    Rises in the price of gold are often increased in gold-stock prices. A small rise in gold prices can lead to important gains in the gold stocks. Moreover, holders of gold stocks could get a much higher ROI than holders of natural gold.
    Gold stocks that pay dividends tend to produce bigger gains. In periods when the whole industry is rising, they could be twice better than non-paying dividends when the market is in a downturn.

    Investing in gold is possible in many different ways.
    Today we have more investment options, such as futures, companies, bullion, coins, mutual funds, miners, jewelry, etc.
    For example, gold can outperform stocks and bonds which has happened during a period of 45 years. But if we look at 30 years-period, stocks and bonds were better. If we evaluate 15 years-period gold has outperformed both stocks and bonds. 

    This is one angle of view. The other comes from gold’s ability to protect your portfolio and act as a hedge against inflation.

    Anyway, it is smart to consider holding not more than 10% of the portfolio in gold. Choosing how to invest in gold includes analyzing the various gold-related investment products These investment products have various risks and return forms, liquidity components, etc. Consider how gold performs in a correlation with other assets.

  • Stock Market Correction – The Storm Is Coming

    Stock Market Correction – The Storm Is Coming

    Stock Market Correction – The Storm Is Coming
    A lot of mergers and acquisitions, drop trade investment and lack of business trust indicate a coming stock market correction Bear in mind that markets will not disappear, so you can get back 

    By Guy Avtalyon

    The dark sign of an upcoming stock market correction might be when the companies are buying back their stocks and use them for buying other companies. In this example, the stocks are used as currencies. We can see that so many companies are doing exactly that. Further, we are witnesses of a lot of mergers and acquisitions. The companies are uniting to survive something. But what? What they are expecting?

    Is the logical answer that they are expecting stock dumping and the stock market correction?

    Some analysts say YES.

    The first sign of possible stock market correction they see in companies buying other companies, in mergers with rivals and financed by shares exchange is the signal that the market is close to the end of its bullish period. The opposite opinion befalls when the companies invest in new activities, new operations, development. That would be a good signal for the stock market. But when the companies are using their own shares to buy growth it only can be a sign of the lost confidence.

    Yes, the economy runs in cycles. The sunny days will always follow after rainy days. But we have to be worried when the economy’s condition pattern indicates the coming storm just as we are in a hurry when the real storm is coming.

    How to manage the stock market correction?

    A stock market correction is an alarming condition but quite normal. Some might be surprised, but it is a sign that the market is healthy. Well, in most cases.

    How could we know that the stock market correction is coming? When the stock prices are dropping 10% or higher from their most current peak but not more than 20%. In such a case, we would have a bear market.

    Firstly, don’t try to “time the market.” Avoid swing trading even though trading the ups and downs may give you some profit but for a short while. Many investors are trying to avoid losses by putting money in some other investments where they think there is a better possibility of profiting. 

    Most people lose money by trying to move their money around to participate in the ups and avoid the downs. This is a documented behavior studied by academics around the world. The field of study is called behavioral finance. That is a behavioral bias.

    Our two cents

    When you build your investment portfolio it should be based on knowledge and your education, not on prejudices. It is normal to expect that for every quarter of the year, you will have some negative returns. Tn order to lessen those negative returns or to control them you have to have a diversified portfolio. That means you need to combine your investments. Pick a mix of assets that have more potential for upsides and fewer chances for high returns because that means less risk.

    During the market correction, savvy investors have more discipline, less fear, and stay with their investing playbook. Don’t trade at those times because you may catch larger losses. Behind these words lies the stats, you can easily check it.

    Follow the old Wall Street pattern: Never catch a falling knife.

    Be mentally prepared

    A market crash may happen. When? It doesn’t matter. You have to be mentally prepared for that because the markets are unpredictable and it had happened before. Yes, we all like to be rich even on the paper and it’s really hard to chew a big bite. And the stock market correction is just that – a big bite. Some investors might feel fears, be frightened, and start selling their stocks at the worst time.  

    If you are a long-term investor type, you must have trust that the stock market will adjust eventually. 

    Corrections can last from several days to months or longer but the last mentioned are rare. Remember, a correction may damage your investment for short, but it is a great opportunity for adjusting overvalued stocks. So, buying opportunities are undoubted. So, just keep adding stocks to your investment portfolio while others are selling in a panic.

    Can we predict a stock market correction

    Nope. No one can predict a stock market correction. They aren’t predictable. Moreover, they can be generated by different matters. For example, we know the Great Recession has erupted on the housing bubble. But we know that after everything was finished. But predicting the main cause of the next correction just isn’t possible.

    What we know for sure comes from research. According to one conducted on the example of the Dow Jones, the average correction lasted about 72 trading days or three and a half calendar months. And the correction is when the overall stock prices drop more than 10% and if the decline of more than 20% it is a so-called market crash. That’s all.

    For whom the market correction matters?

    Stock market correction matters for short-term traders. If you stay focused on the long term you will survive anyway. When correction occurs those who’ve adjusted their trading as the short term or those who have leveraged their account with the use of margin, should be worried.

    Traders that used margin had bigger losses during the market downturn. Also, active traders had increasing costs united with their losses during the correction. Holding long-term investment was the best way to survive the stock market correction. At least such investors had a peaceful life.

    Don’t be afraid of a stock market correction. It is usually a great time to buy high-quality companies at a lower price. So, you can add stocks to your portfolio for long-term investments, even the one that previously appeared to be a bit too pricey. Also, a market correction is a good time to examine again what you hold. Sell your position only if you see that your investment, but each in your portfolio, couldn’t meet the cause of keeping it.

    A stock market correction doesn’t need to be terrifying.  If you don’t want to taste it, it is best to stay away from investing in the stock market. Instead, stick with safe investments. 

    Keep your balance.

  • Superstition In the Stock Market May Lead You to Lose the Shirt

    Superstition In the Stock Market May Lead You to Lose the Shirt

    Superstition In the Stock Market
    Stevie Wonder wrote in his famous song:
    Very superstitious
    Writing’s on the wall
    Very superstitious
    Ladder’s about to fall
    Thirteen-month-old baby
    Broke the looking glass
    Seven years of bad luck
    Good things in your past

    Superstition is so live in the stock market that you can barely believe. Imagine that it is Friday 13, just like it was in April, September, and December this year. Some people, especially scientifically-minded, would roll the eyes. But, despite the fact that Friday 13th is just a day in the calendar and it may occur several times in one year, some investors truly believe that it is a bad-luck day. 

    When enough investors share this foolish belief, stock prices can be changed but not in the investors’ favor.

    But do superstitions really affect the stock markets? 

    Some studies revealed that people are more risk-averse when thinking about Friday13.
    One study from 2005 discovered that hesitation to do business on this day ends in a loss for the US economy of almost $900 billion. Does this scare affect stock prices? Believe or not, yes.

    First superstition: Friday 13th

    According to a study, returns on Friday 13th are lower compared with other days.

    This Friday 13th effect was broad spread among numerous investors until 1980 but has disappeared. The reason is simple: automated trading erased the “Friday 13th effect”. 

    But it so funny to talk about Wall Street superstitions. So let’s proceed.

    Superstition In the stock market No2: Did you know anything about the witching hour?

    Several years ago I found an article written by the man who worked as a broker on Wall Street. I am sorry, I didn’t remember his name. But what I remember is the witching hours are between 2 and 3 PM. Superstition linked to this part of the day (notice, it was on a daily base) was related to market close. If the market sold off at that time, it was a sure sign that the market will be closed on a positive mark. In that interval, from 2 to 3 PM, he and his colleagues were maniacally buying stocks. Just to provide a stronger close.  

    It worked until it didn’t. They didn’t leave the stats.

    Superstition In the Stock Market No3: Sell on Rosh Hashanah and buy on Yom Kippur

    The superstition works like this: on Rosh Hashanah, which is the first day of Jewish New Year investors should sell some of their positions and buy them back on Yom Kippur. This year Rosh Hashanah began on the evening of Sunday, September 29 and ended on the evening of Tuesday, October 1. 

    Do you believe that this trade works? Well, yes. More often than not. But for Jewish. Maybe you should try to sell some of your positions on January 1 or on Christmas or on Islamic New Year. In 2020 it will begin in the evening of Wednesday, August 19 and ends in the evening of Thursday, August 20

    But I am not so sure, dates may vary. 

    Chinese new year will begin on Saturday, January 25, 2020. 

    Did you know that for one part of Orthodox the New Year actually begins on January, 14? Confused? It is just a calendar. But if it works for Jewish why it doesn’t work for others? There is no reason. The only thing to consider is, do you have to trade according to the Jewish calendar or you can use any.

    What I learned during my life is: about superstition and taste is worthless to argue. Take it or leave it.

    Superstition No 4: Super Bowl theory

    This theory goes that the Dow Jones will have a good year if a National Football Conference (NFC) team wins the Super Bowl. But if the American Football Conference (AFC) team wins it will end the year lower.

    For those with a lack of knowledge about American football, the American Football Conference (AFC) and National Football Conference (NFC) are parts of the National Football League (NFL). Honestly, European football is simpler. 

    From 1967 to 2003 this superstition showed it was accurate 68%.  Several years in a row AFC teams were winning the Super Bowl and that was a period of economic growth, but who cares?

    Let’s ask the stats.

    It was 1967 when one AFC team won the first Super Bowl. During the following period, AFC teams have won 11 times, if you check the stock market result you will be surprised. In 6 of those 11 years, the stock market was dropped. On the other side the stats aren’t so favorable, NFC won Super Bowl more than 30 times and Dow Jones didn’t advance in each of them.

    October Effect

    This one is a bit harder to rebut. 

    The October effect is a market anomaly. The stocks tend to decrease during October. Honestly, it is mainly a psychological effect rather than a real wonder. The stats show something different than this theory. 

    But…

    October has this reputation thanks to Panic in 1907, Black Monday, Black Tuesday and Black Thursday in 1929, and Black Monday in 1987.

    Black Monday, 1987 that happened on October 19. The Dow fall 22.6% in one day. It was possibly one of the most unlucky days for investors and the stock market. 

    Despite the scary title, this effect is not statistically exact. From a historical view, October has seen the end of bear markets more than it witnessed the beginnings. But, investors see this month as dangerous and they are selling, and that sentiment creates possibilities to buy on the other side. So, superstition or not, while one sees the end, the other will see the beginning.

    Bottom line

    Irrationality and superstition in investing will always cause lower returns. Traders, whether they admit it or not, are superstitious. Some will have a happy pen, the other lucky shirt or underwear (hard to believe), some will have some other talisman. Superstition in the stock market is broad spread.

    Luckily, many investors and traders are devoted to science, education, and knowledge. 

    As Stevie Wonder wrote: 

    When you believe in things
    That you don’t understand,
    Then you suffer,
    Superstition ain’t the way

    Happy trade!

  • UGAZ And DGAZ Stocks – How To Trade Them

    UGAZ And DGAZ Stocks – How To Trade Them

    (Updated October 2021)

    UGAZ And DGAZ Stocks

    UGAZ and DGAZ are ETNs tracking natural gas prices.
    Energy exchange-traded products (ETPs) might be a good trading opportunity as much as energy ETFs.

    UGAZ and DGAZ stock closely watch the US Natural Gas Fund (UNG) and UNG tracks the price movements in natural gas. 

    Let’s make a distinction between those two.

    The main purpose of UGAZ (VelocityShares 3x Long Natural Gas) is to increase the daily performance of UNG by three times. That’s 300%. To make this clear, if UNG price grows 1%, UGAZ will display a daily increase of 3%. The best time to trade UGAZ is when you have a bullish sentiment on UNG.

    The main aim of DGAZ (VelocityShares 3x Inverse Natural Gas) is to generate profits from the losses in the UNG fund. DGAZ will increase the losses by three times inversely. Meaning, if UNG price drops by 1%, DGAZ could bring you a gain of 3%. So, the best time to think about DGAZ is when you have a bearish sentiment on the UNG fund.
    As you can see, both UGAZ and DGAZ have 3:1 leverage. That can notably boost your potential profit.

    Trading UGAZ and DGAZ

    If you want to trade them, it’s vital to watch the UNG fund. UNG fund is the basis of ETF that runs both of them. This can be a complex fund but you can go short in the long term and consider both UGAZ and DGAZ. Natural gas is a highly volatile commodity and UNG is not straight associated with natural gas in the physical sense. So, UNG isn’t a clever investment if you keep in mind it fell by more than 90% after its start. Also, it doesn’t pay dividends. Instead, UNG uses future contracts and OTC exchanges to find and copy the natural gas price. It doesn’t hold stocks. So, we can say that UNG isn’t a good investment by itself. There is where UGAZ and DGAZ come to the scene. If you don’t care for dividends and just want to keep the position for a short-time the long-term volatility of FUNG will not affect your investment.

    As we said, UGAZ increases the UNG gains, while DGAZ goes up when UNG falls in price. But keep for the short-term, as long-term holding is never recommended.

    UGAZ and DGAZ trading opportunities

    These products can be risky. Well, you have to follow the news as ETNs give 3-time leverage in a single day. As we said, when the natural gas price rises by 1%, UGAZ will rise by 3%, and DGAZ will fall by 3%. To repeat, if you want to hold UGAZ or DGAZ the percentage performance will oppose your expectations.
    A lot of circumstances may influence these products. For example, politics, global economy, supply and demand, weather, interest rates, and many others.
    The way to trade USO or UNG is to trade options. That will allow you to achieve better risk-reward levels. The profit potential could be tremendous.

    Bottom line

    If you look at the historical data you will find peaks over winter, for example, but also, sometimes the price can make a sharp move down.
    Why does this happen? The natural gas price depends on weather forecasts. So, you have to watch that. If you see the meteorologists are expecting a warm winter you can be sure the demand will be lower. So, pay more attention to DGAZ.
    The other factor that may influence the gas price is the change in natural gas supply. So, you have to keep attention on weekly natural gas storage reports.
    Both will give you the future course of the natural gas price. And, to add more pain, remember, UNG isn’t always successful while mimicking the gas prices. You have to be ready for the UNG price failure.
    UGAZ is a tactical trading tool. It provides 3-time exposure to its reference index, the S&P GSCI Natural Gas Excess Return Index. This ETN is not designed like a buy and holds an investment. The return can differ hugely from its initial exposure.
    It consists of complex effects and extreme concentration on quick period natural gas prospects.
    DGAZ is the inverse product, it is intended to be a tactical trading tool, not a buy-and-hold investment. It is for a one-day holding period.

  • Is PEG Ratio Really Useful?

    Is PEG Ratio Really Useful?

    Is PEG Ratio Really Useful?

    The PEG ratio is one of the most popular metrics. It is so easy to calculate it. It never takes more than 10 secs even if you are not good at math. 

    But, what do you think, is this extremely simple metric, this PEG ratio really useful?

    Let’s see. Let’s examine it a bit more on some examples.

    First of all, the PEG ratio or the price/earnings to growth ratio is a stock valuation measure. Investors use it to evaluate a company’s performance and investment risk. It is a measure, so it can be calculated. 

    When the PEG ratio value is 1 we can say there is an excellent bond between the company’s market value and its expected earnings growth. If the PEG ratio is higher than 1, the stock is overvalued. But when the PEG ratio is lower than 1, the stock is undervalued.

    The formula for PEG ratio is:

    PE Ratio (Price/Earnings) / Expected Growth Rate = PEG Ratio

    Assume we are examining two stocks with different characteristics

    Stock A company: 

    price – $20/share
    earnings – $4/share
    expected EPS growth – 5%

    Stock B company: 

    price – $40/share
    earnings – $4/share
    expected EPS growth = 20%

    For stock A company

    P/E ratio = $20/$4 = 5
    PEG ratio = 5/5 = 1

    For stock B company

    P/E ratio = $40/$4 = 10
    PEG ratio = 10/20 = 0.5

    If we study the P/E ratio for valuation plans, we will discover that the stock B company has an advantage because it has a P/E ratio that is 50% less than that stock A company has. But if you find that company A is going to improve its earnings 5 times faster than company B, you may modify your opinion. If you use the price to earnings growth, you will see that the stock A company trades at a lower PEG ratio than stock B company. So, what can we conclude? Company A stock may give a better value.

     

    But is that really true?

    Well, there are some weaknesses connected to the PEG ratio. Earnings growth is not an isolated thing in the market minds. To get a whole picture of the stock value you have to take care of many factors such as cash flow, dividends, revenue growth, etc.

    Further, when it comes to “growth” in the phrase “price/earnings to growth ratio” you will be faced with one problem when you are trying to value a company. You actually don’t know the rate of earnings growth. In the best case, you can guess or rely on Wall Street analysts. Having thin in mind, your PEG will be as good as your data is.

    Well, something is good with the PEG ratio. It is very useful for smaller companies but for large companies (for example Disney or Ford) where the growth isn’t so important to total returns, it can cheat.

     

    So, is the PEG ratio really useful?

    You have to keep in mind that it isn’t a mathematical result. The method is as good as its inputs. The future growth rate could be the main problem in this PEG formula. When you or any analyst make forecasts about the future it can be wrong.

    To make it clear, it is easy to calculate the PEG ratio for companies with weak growth. But, mature companies with excellent earnings and great dividends, have a slow growth rate. So, such companies will never have a PEG ratio of 1 or less. Right?

    It is almost the same for companies with fast growth.

    For instance, a company growing in a surplus of 30% per year will be incapable to maintain such a growth rate. Can you see how the PEG ratio is as good as its inputs? A huge amount of failures in the future earnings growth rises from a too optimistic or too pessimistic viewpoint for the company or industry. Getting an exact PEG ratio depends on what factors you use in the calculation. You may find that the PEG ratio is incorrect if you use historical growth rates. This one especially can lead to mistakes when future growth varies from the past.

    Bottom line

    Traders-Paradise wants to give some spotlight on the pros and cons of using the PEG ratio. As the answer to a question Is PEG ratio really useful, we can say: the PEG ratio is useful but only when you use it to improve a more precise discounted cash flow analysis or relative valuation.

     

  • How To Know If a Stock is Worth Buying

    How To Know If a Stock is Worth Buying

    How To Know If a Stock is Worth Buying
    How to recognize if a stock is worth investing in?
    What causes a stock to be good or bad?
    What things to consider?

    By Guy Avtalyon

    How to know if a stock is worth buying? Let’s assume you are new in this field and how you can decide what stock to buy. For some investors, it is a tricky part. To be honest, it is hard for everyone. The risk is involved, the volatility of stock or market, the investment goal. Everything is on the table. But if you follow some rules connected to the estimation you can figure out how to know if the stock is worth buying. Yes, many people will tell you stock investing is like a wheel of fortune. And they are wrong. Investing is like solving the problem. Everyone has its own way, own style, but the goal is the same: solving a problem.

    Prudent investors must enter the stock investing as if they have to solve a problem. Step by step. 

    Buying stock isn’t like buying a new sofa and when you find it isn’t for your room you can take it back. When you buy stocks, you have to be convinced they will hold their value, increase in value, and you will gain profit when you sell or deliver to you notable dividends over time. The main point is to know when a stock is worth buying. 

    Look at the price

    When you have to decide if some stock is worth buying the first thing you will find is its price. You have to figure out how much the ownership of shares in some companies will cost you.

    The amount of money you have in your hands will determine how many shares you can buy but the most important is to know historical data about particular stock prices. If you find the stock has steadily increased over time you will know that you can expect a good value in the future. 

    Pay attention to revenue growth

    Share prices will grow if a company is growing. A company is growing when rising its revenue. Increasing revenue will show you if the company is strong. We can say it is a major indicator often called top line. The important part is not looking at revenue isolated. You have to observe all rise and drops in each quarter and year. And here is the tricky part. The positive trendline is good for the stock price but the revenue may be dropping or be flat and it is important to understand why that is.

    You should check the company’s current holdings, projections for future operations and stability. If you hear or read some news, no matter if they are local or even rumors that the company is doing bad, it is better to step back. You wouldn’t like to hold stocks with so much stress. Your money is involved and you could lose everything invested. So, check the company’s revenue, it is easy since almost all companies have their official websites where you can find all this info. 

    But keep one thing in mind. If it is a temporary situation and historical data shows its stock was good in price that can be good for you to buy a stock at a low price and wait for it to rebound over time.

    Some stocks may temporarily drop in price and it can be a good deal to buy them now because they have the potential to recover.

    What is the company’s earnings per share

    This info is important and you can easily count it. Just divide the leftover amount at the end of each quarter by the number of shares the company has sold, and you get the earnings per share. For example, if a company made $100 million in profits in the prior year and has 52 million shares, the earnings per share is $1.92. As an investor, you should pay attention to this since the higher earnings per share (EPS) shows you that the company is in good shape. And the tricky part again arises. Some companies can manipulate with EPS. The process is simple. They do it by buying back their shares. In that way, they are boosting EPS but not increasing profits.

    Use the technical and fundamental analysis to know if a stock is worth buying

    You will have some idea about stock’s quality if you check the prices over the past 200 days, for example. And you will see the trends. Trends are repeating. 

    Analysts think that by observing the movement over a determined period, you can define the baseline, the point where the stock should recover. Here the advice, don’t buy the stock at its highs, wait to come close to the baseline or to hit it. Some may ask how is good stock if hits the baseline. Well, when the stock hits the peak it is expensive, the price is increased, and the stock has no more space to run so the only possible scenario is to go down. If you buy a stock at its peak you will lose your money. So, it isn’t a good time to buy a stock.

    Also, perform fundamental analysis. That will show the current and projected financial aspect. Use that info to discover now’s value. Use the company’s statement and balance sheet to determine the business strength. It isn’t a 100% indicator,  but it is enough good sign of what you can expect from the company in the foreseeable future.

    How to know if a stock is worth buying

    One thing is sure and you must have that in mind when you are trying to know if a stock is worth buying.

    A company can’t manage every single thing that might affect the business. The general economy can influence the health of a company and its stock play. For example, consumer prices, the changes to interest rates can affect how a company is doing. That is not in connection with its own business. But, the stable economy produces companies’ wealth and share increases come with that. And opposite, share prices can stumble during times of economic uncertainty.

    You will find many analysts that issue reports and tips about individual stocks. These tips appear with “buy” or “sell” ratings. But analysts often disagree, so it isn’t recommended to depend on one report. Always compare several to know if a stock is worth buying.