You must have an objective in investing in shares or stocks. Are you hoping for capital appreciation over a longer period, or good dividend payout yearly, or speculative play – moving in and out of shares for quick gains?
Based on your financial situation, you may want to carefully assess your appetite for risk and your tolerance level for losing all your investment in shares. Investment in shares requires your careful consideration in deciding which particular share or stock to buy. In this regard, it is wise not to just buy a stock based on impulse or incomplete information or gut feel. The least we must do is to study the company you are planning to invest in. Then the next question is what information we must look at to get a feel of the value of the share.
First we must understand that there is no perfect timing to buy or sell a stock. We cannot time the market, so to speak.
If you wanted to invest in a company, first you must review the economy of the country. This covers among others, projected Gross Domestic Product (GDP) growth rate and interest rate environment. Is the interest rate going up or down? Note that interest rate is inversely correlated to share prices in general.
The next macro-level indicator to consider is the overall stock market performance: whether the Straits Times Index (STI) of the Singapore Stock Exchange (SGX) is trending upward or downward.
Then we review the specific industry sector that the stock is in. Let’s say you are looking at buying a bank stock, you will look at the banking sector for comparison of the particular bank stock to shares of other banks listed in the banking sector. If you study the PE ratio (Share Price to Earnings ratio, sometime known as multiple of earnings) of this bank stock with other bank stocks, you will see whether the particular stock is selling higher or lower than the others. Next you can study the Dividend Yields of the stocks and compare among them. Other useful financial indicators are Earnings Per Share (EPS) and Book Value Per Share.
Each stock has a historical 52Weeks High and 52Weeks Low share prices. You can assess where is the current share price in relation to the high and low prices. Compare the current share value against the Book Value Per Share and see how much you are paying above Book Value Per Share.
Having looked the financial ratios, it will be necessary to review news of the company you are investing in. These news indicate the past and future activities of the company.
From the above analysis, you then make your own decision whether to invest in the company share and to time the entry in the market.
Written on 11/15/2006 2:33 PM
Copyright © 2006, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.