There's an enormous amount of data available to investors about stock markets, companies, and stock price action.
Stock Charts
One activity most investors engage in is to read a stock chart. To a large extent, online financial sites have displaced the stock tables you find newspapers, but the information is similar for both. Stock charts typically include:
52-Week Range. The highest and lowest the stock price has been over the past year;
Yield. The dividend yield, which is the annual dividend divided by the per-share price
Open. The price at which the stock opened
Last. The price at which the stock last traded
P/E Ratio. This is the price/earnings ratio, the most popular indicator of a stock's value. The P/E is the stock price divided by its earnings per share. P/Es are never high or low themselves, but only in relationship to stocks with similar characteristics. If a stock that has a high relative P/E vis-ÃÂ -vis other companies in its sector, it indicates that investors value the company highly and are willing to pay a premium to own it. A low P/E indicates a stock that is out of favor with investors. A high P/E may also indicate that the stock is overvalued and is due for a correction, while a low P/E may indicate a stock that is undervalued and is due for a price rise. Like all stock indicators, the P/E alone cannot tell you whether a stock is a good investment.
Volume.
The number of shares traded during the specified time periodChange. The change in the stock price
Percent change. The percent change in the stock price
Stock Indexes
Stock indexes include a basket of stocks that is used to track stock price changes over time. Among the best-known indexes are:
Dow Jones Industrial Average (DJIA). Often just called "the Dow," this index tracks the price average of 30 blue-chip stocks. Because the Dow includes so few stocks, and only blue-chips at that, it's not the best indicator of the overall trend of stock prices. But the Dow has the advantage of being the oldest (since 1896) and best-known of stock price averages.
Standard & Poor's 500. Known as the S&P 500, the index includes 500 mid-cap and large-cap stocks in a broad range of industries. The S&P 500 represents about 70% of the value of US stock markets and is widely considered an excellent measure of overall stock market performance.
The NASDAQ Composite Index. Often simply called the NASDAQ, this index contains all stocks traded on the NASDAQ exchange. Because the NASDAQ is heavy in technology stocks, the NASDAQ is considered a good indicator of the price trends in the technology sector. The NASDAQ also contains many stocks with small market capitalizations, so it indicates the price trend of more speculative stocks.
Technical versus Fundamental Analysis
All investors would like to have a crystal ball to predict the stock prices of specific companies. Investment research aims at analyzing stocks to forecast their future stock prices. There are two broad schools of investment research:
Fundamental analysis focuses on the company performance, including its products, quality of management, and its financial results, especially the amount of earnings it records. It also considers economic conditions and the overall trend of the economy.
Technical analysts focuses on the price action of the stock - its historical price changes - as well as other indicators of market activity, such as the amount of trading in the stock. Technical analysts are also known as chartists, because they try to forecast future stock prices using the patterns of the stock's price action as revealed in its stock chart.
As a general rule, most stock analysts, especially those who analyze stocks in a specific industry, rely primarily on fundamental analysis to decide whether a stock will prove to be a good investment or not - especially over the long term. Short-term traders who are less interested in a stock's long-term prospects focus more heavily on technical analysis.
Finding and Understanding Company Information
There are many sources for information about specific companies and their stocks, including:
Company Web sites
Annual reports (usually available from the company's Web site). The annual report contains the company's financial statements, including its balance sheet (which is a snapshot of the assets the company has as well as its financial obligations, known as liabilities) and income statement (which shows the results of the company's operations, including earnings, for the fiscal year).
Quarterly earnings reports. Companies in the U.S. report their earnings at the end of each three-month period. Companies may have a fiscal year that begins on a date other than January 1. For example retailers begin their fiscal years on February 1, so that their financial statements include results for the entire Christmas season, which runs through the beginning of the next year. For most companies, however, the fiscal year and the calendar year are the same.
Financial newspapers and magazines, like the Wall Street Journal and Barron's
Financial Web sites, like Yahoo! Finance and Fool.com
Cable TV channels, like CNBC
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