We have previously discussed the stock market’s deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). Selling a Loser – There is no guarantee that a stock will bounce back after a protracted decline. But it’s important to be honest when you realize that a stock is not performing as well as you expected it to. Don’t be afraid to swallow your pride and move on before your losses become even greater. Also, don’t overemphasize the few cents difference you might save from using a limit versus market order.
A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you’ve lost 100% of your initial investment. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. If you wish to invest in the stock markets and know nothing about them, one convenient way is to opt for mutual funds.
Also study market movements , because sentiments play a major part in driving stock prices. Even if you develop a well-researched, diversified portfolio and hold it for the long term, inevitably some of your stock holdings will turn out to be duds. Technical market data like share prices and volumes is available on company web sites, and old research reports on brokerage houses’ s.
Look for the following ratio-based characteristics in a stock you are keen on: low PE, low PB, high dividend yield, low debt to equity ratio, and high RoCE and high RoNW. The most commonly used ratio, it compares the price of a stock to the company’s earning per share (EPS). Sell only to meet a financial obligation, to re balance, when fundamentals deteriorate, or when the stock becomes overvalued.
By now, anyone who follows the stock market on a regular basis has likely heard of the Chicago Board Options Exchange (CBOE) Market Volatility Index (Symbol: VIX). The VIX is a measure of implied market volatility over the upcoming thirty (30) calendar days, based upon how much options traders are paying for options contracts in the options markets to protect their long positions against market downturns (see: How to Trade Options ).