INVESTING & TRADING STOCKS AND INDICES

Stock investing means gathering fundamental information and choosing stocks by analyzing them. Equity traders have access to thousands of stocks and indices from all around the globe.

Equity Investing

Technical analysis is always important but the key to equity trading is fundamental analysis.

TradingCenter's outside-in investing model

Outside-in investing means beginning by analyzing the economy and the general industry and then moving to individual corporate analysis. Our system can be implemented in five steps:

(i) Macroeconomic Landscape {identifying the stage of the macro-cycle}

(ii) Industry → Sector Analysis {technology, future growth rates, threats of substitutes}

(ii) Management Evaluation

(iii) Identifying the Corporate Strategy {Competitive advantage}

(iv) Balance Sheet

► Fundamental Analysis | ► Technical Analysis

 

Investing Famous Quotes

These are some important quotes for equity traders:

1. Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years {Warren Buffett}

2. Never invest emergency savings in the stock market {Suze Orman, and many others}

3. It's not how right or how wrong you are that matters but how much money you make when right and how much you do not lose when wrong {George Soros}

4. Look at market fluctuations as your friend rather than your enemy and profit from folly rather than participate in it {Warren Buffett}

5. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria {Sir John Templeton}

6. If investing is entertaining and if you're having fun, you're probably not making any money, good investing is boring {George Soros}

7. I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful {Warren Buffett}

8. The individual investor should act consistently as an investor and not as a speculator {Ben Graham}

9. The stock market is filled with individuals who know the price of everything, but the value of nothing {Phillip Fisher}

10. The invisible hand of the market always moves faster and better than the heavy hand of government {Mitt Romney}

► Stock Market Rules | ► Trading Tips for Starters

 

 

The Goals of Fundamental Analysis

The main goal of a fundamentalist is to trace financial securities that are priced below their fair market value. Fundamental analysis aims to estimate the fair value but also to identify and measure the risk of each investment decision. Risk identification is essential for effectively managing your portfolio.

Everything is Risk/Reward, these are the two main goals of fundamental analysis:

(1) Determine the Fair Value of financial securities (profit-potential) 
(2) Identify and measure risk (loss-potential)

Fundamentals are based on internal and external factors affecting investment. For example, if you buy a US stock you must be aware of the company’s balance sheet but also be aware of the current stage of the US macroeconomic cycle.

Building a Fundamental Analysis Framework

Internal factors of fundamental analysis include facts and figures such as:

1) Earnings per Share – EPS
2) Projected Earning Growth – PEG
3) Dividends Paid
4) Sales per Share
5) Shareholders' Equity
6) Debt Exposure Analysis
7) Cash-Flow Analysis
8) Management experience and effectiveness (ROE and ROI ratios)
9) Strategic Analysis concerning new investment projects
10) Estimations about future Demand / Supply of the company's products/services

► Find out the Basics of Fundamental Analysis

 

4 Major Categories of Financial Ratios

Usually, financial ratios are used as a tool for comparing different companies and industries in several aspects. These financial aspects include profitability, dividends paid, book value, and many others. In the case of a company, a ratio evaluation is based on a current share price or the overall market value (capitalization).

The market value of a company is computed by multiplying the current share price by the total number of shares outstanding (number of shares x share price)

Major Ratio Categories

(1) Balance Sheet Ratios –Measuring Financial Stability

(2) Operating Ratios -Measuring Performance

(3) Efficiency Ratios –Measuring Efficiency

(4) Valuation Ratios –Measuring Effectiveness

► More on Financial Ratios

 

The Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is one of the most important indices in the US and in the whole world. Dow Industrial was introduced in 1896 by Charles Dow. The Dow Industrial was originally used to measure the stock prices of some of the largest US industrial companies but later expanded its composition to include companies from more industries. Over the years Dow Jones Industrial has proved to be a significant indicator of global political and economic upcoming events.

► The Dow Jones Industrial Average

 

S&P500 and Peter Lynch's Secret Formula for Valuing a Stock's Growth

The Standard & Poor's 500 index includes 500 leading American companies listed on the NYSE or NASDAQ and captures 80% coverage of available market capitalization. The S&P 500 stock market index is based on the market capitalizations of 500 large American companies having common stock. S&P 500, introduced in 1923, as the ‘Composite Index’. On March 4, 1957, it expanded to its current 500 stocks basket. Today, it is one of the most traded equity indices in the world. The S&P 500 differs from other U.S. stock market indices, because of its weighting methodology.

Applying the Peter Lynch's Formula to S&P500 (Median and Current Value)

In his book, One Up on Wall Street (1989), the famous mutual fund manager Peter Lynch provides a simple model of comparing corporate growth over stock-market price. Here is how it works...

► More on S&P500 and the Stock Market Formula

The Nasdaq Composite

Nasdaq is one of the most interesting stock exchanges in the world. Technology is what matters when we talk about the Nasdaq. Technology evolves and Nasdaq is the place to trade technology stocks.

 

Find Brokers to trade Stocks and Indices

Using TradingCenter reviews you may find the stockbrokers with the lowest commissions in the world.

► Stock Brokers | ► CFD Brokers | ► Forex Brokers

 

 

■ Introduction to Equity Trading

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