Important things to Look for in an Investment

by on January 15, 2011

New investors are habitually interested in purchasing a company stock but they are not sure that from where they will begin. If anyone searches for a good investment, follow these four characteristics which should serve as helpful guidelines given below.

The investor should know about the price of the entire company: It is a must to look at the price of the entire company. The cost of acquiring the company is called market capitalization and it is always referred by financial professionals. It is the market capitalization of all outstanding shares of common stock multiplied by the coated price at any given moment of the time.

Here is an example which will help from overpaying for a stock. Consider the case of eBay and General Motors of the peak of your success of the internet area. At one point during the explosion eBay has more market cap as the entire General Motors’ company. To put it into standpoint, in financial year 2000 General Motors made $3.96 billion in profit whereas eBay made only $48.3 million. Yet if investors want to buy either one of them they have had to pay the same amount. It is unbelievable that any investor would pay the same price for both the Companies but the general public are seduced by vision of quick profit.

Is the company buying back the shares? : Corporate growth is not that much important as per-share growth. Company could have the profit, sales and revenue for at least consecutive years, but create large number of returns for investors by reducing the total number of outstanding shares.

Think of your investment like a chocolate cake, each piece represents one share of stock. Would you like to have one cake or eight parts which will have bigger parts with more chocolate icing?

The same principal is true in business also.

What are the reasons to invest in a good company? : The investor needs to ask himself that why he is interested in that particular opportunity. It is dangerous if investor falls in love with a company. Make sure that the fundamental Company is the main reason for your investment. The investor has to throw out his feeling from emotion and select investment on hard data.

Is he willing to own the stock for the next ten years? : If the investor is not willing to have the stock for the next ten years he really has no business owning the business share at all.   It is impossible that a portfolio managed by the best professionals can’t tackle an unmanaged portfolio of long-term stocks held indefinitely.

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