Things to look out for before investing

Saturday June 15, 2013


Who would not want to invest his money in a potential business and get fantastic returns? Properties, equities, bonds or potential businesses, everyone is keeping his or her eyes open for a promising entity to pump cash into.

Company stocks and shares are often an attraction for investors who are on the lookout to make some money. When it comes to new investors, they tend to get excited at the prospect of investing and may overlook the details that need to be researched prior to investing. Some may not even know where to begin when it comes to recognising a good investment.

Below are guidelines to assist you when it comes to scouting for a good investment:

1 The cost of the whole company

While conducting research, many tend to look at the current price of a company’s share to see how it is faring. True, this is important, but don’t forget the whole picture. The cost of an entire company is referred to as market capitalisation. Market capitalisation is calculated by multiplying the price of all outstanding shares of common stock with the price quoted per share. This test will help prevent you from paying too much to obtain a stock.

2 Reasons for investing in a company

Question yourself on what are the factors that have enticed you to invest in a particular company prior to buying its stock and shares. If the factors are the good foundation of the organisation, consistent profit not to mention the reliable and efficient management, then you are on the right track.

However, if you are investing in a company solely because you personally like the people there or following your peers to do so, be careful. Decisions should be made based on facts and data.

Do thorough research to gain as much knowledge as you can about a company before investing in it. This requires a lot of patience as you can’t just jump the gun. Remember; never make decisions based on emotions. Always use your intelligence and rationale.

3 Willingness to have ownership of shares for at least a decade

If you can accommodate owning stocks in a company for the next 10 years, then go ahead and invest in them. However, if you are not willing to and can’t hold your stocks for that long, then reconsider buying shares.

In order to make a profit and succeed in your investments, select a great company which shows prominent potential for future growth.

Then, pay the least amount for the initial stake. The next move would be reinvesting the dividends gained and leave that stock alone for several years.

4 Reduction of the amount of outstanding shares

Always check if the company is buying back its shares. If it is, then it is a good firm to invest in. As a shareholder, you should always favour companies who have policies that reduce their outstanding shares if the company’s alternative uses of capital are not appealing. This method will automatically make an investor’s share in the company much bigger.

In a layman’s term, imagine you are investing into a huge round chocolate cake. Each slice cut, refers to a share of stock. Now would you like the slices to be less or more? The cake with less slices is much better as each slice is huge and laden with more rich chocolate compared to the cake with more slices. This is the same in business. When the company’s share is cut to less slices, each investor gets a higher percentage of return which equates to a good investment.

Source: The Star

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