Today, one of the most common types of investing money is investing in stocks. It is important to note that the popularity of the presented type of investment can be determined by many advantages endowed with special significance. This provision compares favorably with investing money in securities among the other options currently known. Certainly, for the most successful and profitable work of the money invested in stocks, one should know some nuances and certain subtleties of the direct investment process. It will be advisable to consider these points in more detail.
General Provisions
To begin with, it should be noted that most novice investors confuse two fundamentally different concepts. Thus, a cash investment in shares suggests that investing capital in securities on a medium or long term basis is presented in the expectation of an increase in the price of each individual share. Securities trading on the stock market via the Internet, the second concept, suggests that the profit comes from certain changes in terms of stock prices, usually in the short term. It is important to note that this change can be determined by the direction both in the direction of decreasing the price, and in the direction of increasing it. Thus, the presented tool is a tool for speculative income.
Trading on stock structures, which is promoted by traders in one way or another, implies the presence of certain knowledge in the field of technical and fundamental analysis of the securities market, skills in working with trading terminals and trading strategies. In addition, it is an activity that is associated with an increased level of risk.
Investment Opportunities in Russia
If a person wants to make an investment in stocks, then he has the opportunity to trade them independently through a brokerage company or give money to this structure for management. However, the last topic can be designated as a fundamentally separate aspect, in accordance with the content of which an independent article can be stated.
Thus, it is logical to consider medium-term and long-term investments in stocks, as well as investments in bonds. In addition, it is important to identify the procedure for the formation of the investment portfolio and its further management in order to maximize profits and minimize risks. One way or another, a Russian investor is endowed with the opportunity to invest in shares of both domestic and foreign companies.
Investing in shares of Western structures
It is important to note that investing in the shares and bonds of Western companies, an investor from the Russian Federation can sell exclusively through a brokerage company that has a license (special permit) for direct trading of existing types of securities on exchange markets. In Russia, accounting for financial investments in shares is carried out both in relation to the exchange and in a direct way, that is, outside the exchange market structure. It must be remembered that on the stock exchange investing money in various kinds of shares is carried out only through the help of a broker.
To do this, the investor needs to open a brokerage account and make a deposit to purchase securities. It should be noted that for the full service of the brokerage account, the investor needs to periodically pay a specific commission amount.However, today far from all Russian structures are listed. Thus, the investment of funds in the shares of companies that are not on the market is possible through the execution of a contract of sale subject to the announcement of the right to hold securities by a registrar engaged in accounting for ownership of certain shares.
Interestingly, in addition to shares, the investor has the opportunity to invest money in various kinds of bonds. So, he can create an investment portfolio that includes both stocks and bonds. It is important to know that investing in stocks of companies is a rather complicated process. One way or another, he suggests that the investor should have a certain level of financial literacy. It will be advisable to refer to this process in more detail.
What stocks to invest in?
In what cases is investing in stocks logical? Initially, it is necessary to determine the number of individual securities that will further form the investment portfolio. In accordance with this issue to date, no definite recommendations have been identified. Typically, the number of shares in the portfolio of a private investor varies from three to eight units. It should be remembered that under no circumstances should one invest in shares of exclusively one structure. The minimum in this case is three enterprises. It is necessary to add that investment, one way or another, should be carried out strictly according to the currently relevant rules of diversification.
The maximum is revealed by the investor's ability to daily monitor and analyze the incoming information, which, as a rule, is extremely large. Of course, many nuances are determined by the amount of invested capital or the size of the deposit. In any case, you need to create an investment portfolio from those shares that belong to different sectors of the economy. It is important to note that the following points can be distinguished as the main ones:
- Consumer commodity products.
- Basic materials.
- Industrial products.
- Financial resources.
- Various kinds of services.
- Utilities.
- Technology sector.
- Health and related areas.
Analysis
All sectors of the economy presented in the previous chapter are formed from certain sectors. So, almost in the first place is the analysis of the macroeconomic situation. In a situation where an investor who has made some investment in stocks expects an increase in the value of securities during the period of growth of the main economic indicators, it is necessary to pay close attention to shares of sectors with extremely high growth potential, as well as securities that have the most optimal price ratio /profit. At a time when the economy is in a phase of stagnation, it is necessary to acquire reliable stocks that fully ensure a stable level of dividend income. In this case, the investor needs to focus primarily on a significant degree of dividend yield on securities. It is important to note that the inverse relationship is clearly visible between the presented indicators: with the growth of the ratio indicated above, the dividend yield becomes somewhat lower.
One of the reasons for this ratio is the need on the part of new companies for volume financing in order to bring to the market certain innovative developments, as well as occupations of a specific niche. In the event that the country's economy, in accordance with the most important indicators, grows, the availability of credit also increases. So, the placement of securities, as well as accounting for investments in shares are much easier. When the economy is in recession, investors, one way or another, want to reduce risks.It is logical that lending is realized at a higher percentage. In any case, such circumstances increase the risk of loan defaults and non-repayment of bonds.
Which country to choose for investment?
Investing in stocks of various structures is a serious matter. Therefore, it is important to choose a specific country for investment operations. It is important to note that it is most expedient to produce it based on an analysis of the current stage of economic development. So, preference is given, as a rule, to the country whose economy is in the boom phase. In addition, priority is given to a country that entered this phase somewhat earlier than its rivals. It should be added that considerable attention is paid to the analysis of economic growth rates, in other words, to the percentage growth of gross domestic product.
In addition, for investment in stocks (assets) a very important factor is the stage of development of the financial resources market, as well as taxation. Today, investors quite often invest in securities and the further formation of the investment portfolio at the end of the recession. If the country's economy is in the growth phase, growth stocks are extremely promising. When the economy stagnates, preference, on the contrary, is given to the securities of reliable structures, the dividend history of which is defined as satisfactory, or better, positive.
What factors influence the choice of stocks?
Investing an organization in shares of other organizations is a delicate matter. Securities as an object of investment are characterized by the financial condition of the company. Today, there are a great many indicators that an investor should be guided by when investing in various types of stocks. Among them, it is important to note the following points:
- The market capitalization of the structure, according to which the range of 300 million to 2 billion is the desired range. It must be taken into account that well-known large companies will continue to show insignificant, but stable growth. Securities of insignificant in terms of size and popularity structures have the opportunity to grow significantly. When the strategy developed by the investor is aimed at the growth of securities, he is primarily interested in small niche organizations with quite serious growth potential. In other words, it is advisable to look for structures whose revenue volumes are constantly growing. In addition, their cash flows and profits are always stable.
- The cost of a single share in excess of five dollars. It is important to note that securities of lower value are endowed with higher volatility, which on some days can reach twenty percent. This provision significantly increases the risks.
- The average daily trading volume, which starts at 300,000. It should be noted that the presented indicator is extremely important. It characterizes the liquidity of securities, that is, the ability to sell them in accordance with the market or close to that rate. By the way, in the case of a low indicator, this is very difficult to implement, since the demand for securities is insignificant, and the spread is wide. An amount of 300,000 is the minimum threshold, which, one way or another, protects against low liquidity.
Dividend amount and financial ratios
Given the relevance of all types of investment in stocks existing today, as a rule, high dividends are paid by structures that do not invest in their direct development. Such companies are fully acceptable for a conservative portfolio. It is important to note that the securities of enterprises can be considered reliable when their business is defined as financially stable, profitable and efficient.That is why in the process of choosing the direction of investment in the shares of the company it is advisable to study the ratios of profitability, solvency and, of course, liquidity. It is important to consider the following data:
- The ratio of borrowed to own funds is the D / E indicator. So, the smaller the indicator, the more stable the company.
- Quick structure liquidity. It is important to note that the normative level of the indicator should equal or exceed one. In the process of searching for solvent enterprises, it is necessary to apply an indicator that takes into account the most liquid assets of the structure.
- Gross profit margin (determined by a positive value).
- Margin of the operating type of profit (determined by a positive value).
- The return of returns directly to equity should to some extent exceed ten percent. Otherwise, it is more profitable to invest money in a particular banking structure than risk in the process of investing money in securities.
Technical analysis of stocks
It is important to note that after the preliminary selection operation is carried out, it is advisable to conduct a technical analysis of the shares on their chart. First of all, you need to look at the current market trend. So, in case of a downward trend, the acquisition of the relevant securities should be abandoned before the start of the signal allowing the purchase to appear on the chart. You should be aware that a graphical analysis of securities is possible today through the Internet on special services.
Creation of an investment portfolio
As noted above, investing in individual stocks is an unreliable mechanism. For each security purchased, there is a certain risk of loss, up to an absolute loss of investment. That is why a logical investment in securities on a long-term basis implies the creation of an investment portfolio. Based on the investor’s specific goal, in the process of its formation factors such as portfolio diversification, profitability, and the acceptable degree of risk are taken into account. It is important to note that today it is customary to classify investment portfolios according to the investment properties of securities in accordance with three types:
- Growth portfolio (medium, conservative or aggressive).
- Portfolio of income (formed by dividend and interest payments).
- The portfolio of income and growth (currently distinguished between a balanced portfolio and a dual-purpose portfolio).