This article relates to my previous article ‘Investing your profits’. Again I want to tell you please adapt this method only if you are capable and confident. Do not invest all your money in shares or debentures. Try different areas of investment and keep a fair amount in the bank as a stable deposit so you can use it during times of difficulties.
How do you start?
First go to your bank and register with the bank’s discount broker. Read the details of their broachers carefully, so you understand it well. They will give you a password and a number of assistance to set up your account and also they will give you a guidebook including all the steps you should follow while online.
After the initial set up of your account, just go to you account and play around. Do not start ordering directly. Read the news in their web page. Search for companies. Read their profile. You can go further and see their growth charts and take a good idea about the company. Do some research on as many companies as you like and keep reading your financial review every day. So you get a picture of daily trading patterns. You will get a rough idea of what sort of companies you should invest.
If you have taken a good look you might observe that shares of certain companies tend to rise or fall during certain months. By studying the graphs for at least five years, you can get a rough idea of when the prices are likely to fall or rise. Forecasts will indicate the lowest possible price and highest possible price for the year. Keep that in mind too. You can make a work sheet and include all the details in that work sheet. So you do not have to worry searching again. Some times your discount brokers will provide you the facility of saving your search results.
Get to know the (PE) ratio: Price to Earnings ratio.
P/E ratio is defined as the Market value per share divided by the Earnings per hsare. This ratio indicates the time it will take to earn back your full purchase price for you. But you cannot simply depend on the P/E ratio. Usually P/E 12-25 range companies are taken as good and stable performers. They have low risk margins. If you want to do a long term investment, it is better to invest in a company with P/E 12-25. In your brokers website there will be a search tool based on P/E. Select the range you want. Ex: 10-16. If you press search, all the companies with that range will appear on your list.
You can research on the website; the company statistics, Value, Risk, Growth, income and performance. Usually stable companies like industrial, Main food retailers, Banks, and so forth will give a higher P/E growth value than others. Mining and mineral industry will give very low P/E ratios. If you look at their growth charts, their prices go up very quickly and also when prices are falling they fall rapidly too. But you can earn quick money from these companies. Usually their shares prices are very low. Even an increase in 50 cent will be a huge amount compared to the amount of money you spent. But investing in the mining and mineral sectors is very risky and you must do this if you have plenty of extra money to play with. Otherwise don’t do it. I will come back with start investing in my next article. Until then, good luck.