Everyone who is enjoying the Sunshine must have made good decisions when struggling in the dark. If you dont prepare for your future, you will be restless in Old age. Warren Buffet said, “what the wise do in the begining, fools do in the end.” I want to equip you with some important tips on stocks, which knowledge will make your future easy. Dont wait until you make terrible mistakes to look for this information.
Things that contribute to the rise in share price include:
#1.DEMAND AND SUPPLY: On the Stock Exchange, Investors bid, offer stocks and also sell stocks at the market price. A bidder may bid at a lower price if he believes that the stocks are overvalued or when there are many sellers. The person who is offering may want to give up his shares for more money if there are less sellers or when the underlying business is doing very fine. Not to make things difficult for my reader,when there are less sellers than buyers, prices go up. These are common principles in Economics.
#2.EARNINGS PER SHARE: Watch closely after Annual General Meetings. If a Company makes a good profit and their Earnings per Share increases, its Share price will also go up. Sometimes such Companies do not even award dividends. If they are growing, it is justifiable.
#3.FUTURE PROSPECTS: If a Company wants to expand into more profitable new markets, the share price may increase. For me, in Zambia, the Companies in my Portifolio are from the Energy Sector, Finance and Construction. Remember also that if a Company is in a growing Industry, its share price may increase despite making low profits in the Preliminary stages. A bad beginning especially in Capital intensive industries may not be an omen for a bad perpetuity but it should just be probed. So, people are more interested in the future existence plus higher profits of the Company than current profits on the dark start. It is hard to invest in an Industry that is going to extinction and by the same token, a growing Industry has vast possibilities.
#4.INNOVATION:If a Company wants to make a big change that will make it have an advantage over its Competitors, Investors will be lured to buy such a Stock. Value Investors identify such undervalued Companies and make their best bets on their future. Within a short period after the ideas are implemented, stock prices begin to rise.
#5.DIVIDENDS. A Business has to make all the Stakeholders happy. For Investors, they are interested in getting a share of the profits. Hence, a Business that awards good dividends may have its stock price rise just after that Corporate action. Of course, if the Business is not growing much, but not for bad reasons, why keep all the profits?
#6.POSITIVE NEWS: Investors are attracted by good news concerning a Company. If the Image of your Company is enhanced by the Media, the Share price will increase. The Media can either build or distroy a Company Image, depending on the news from that particular Company. But again, no matter how much hype the Business may swim in, there is always time for the truth. The underlying Business Progress matters.
#7.CHANGE OF MANAGEMENT: There are Chief Executive Officers who have made names for themselves. If a Company installs Management that has turned arround Companies before, Investor Confidence increase, in view of which share price shall increase. Look for Top Management that has People with Entrepreneural minds.
#8.MAJOR BUYER: When a Company wants to buy another Company, Investors can be enticed to sell by offering at a higher price. There is a general belief that Companies are bought to be improved.
#9.MACRO ENVIRONMENT: Low Interest rates, Low Inflation, High Gross Domestic Product and Low Taxes may make Investors to opt for Companies in a particular Country. Please note that Indices may indicate how healthy Companies are in a particular Region. Meaning that the moment they rise, it may be an indication that more Investors are investing in that particular Country and stock prices will increase. You can see this from the Indices: Dow Jones, Nasdaq and S & P500 in the USA, FTSE in Britain, DAX of Germany etc.
#10.DEBT TO EQUIT RATIO: If profits and market do not justify the level of leverage, Financial Statements will show.On the Balance sheet will show Liabilities, Assets and Equity. Profit will be found on the Profit and Loss Account. Calculate the Debt to Equit ratio using figures from the Balance Sheet.Companies with healthy Financial Statements i.e reduced debts may have an Increase in Share price. Big debt to Equit ratio may not strangle Companies making high profits. Companies with low profits and not expanding into Profitable markets may find it hard to repay high debt.
Dont forget that your savings in the Bank battle with Inflation.
By CHULU KENNEDY ENEYA.