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How To Buy Facebook Stock Without A Broker – From Power One to Your First Trade: This video will teach you what stocks are, what to keep in mind when trading, and how to place your trade on .
Narrator: Hello and welcome new investors. My name is Cameron May and if you have never done business before, you are in exactly the right place. We’re going to get you ready and confident to make your first stock trade. To do that, we’re going to talk about what stocks are. Then we’re going to talk through the series of steps or decisions traders make when picking individual stocks, using one approach to picking stocks as an example. Along the way, we’re going to show you how to research and trade on .
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So, let’s begin. First, what is a stock? When you buy a share of stock, you are buying partial ownership of a corporation. For example, if you buy a share of McDonald’s, you are becoming a part owner of that company. These items are bought and sold on a marketplace called an exchange, and prices are set according to changes in supply and demand for those items. Second, why invest in stocks? At a really basic level, you have the opportunity to profit if you can buy the stock at one price and then, if it appreciates, sell it at a higher price. This could allow investors to grow their money faster than just saving and potentially stay ahead of the waning effects of inflation.
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You should also be aware that there are many ways to do stock investing. In this video, we’ll focus on ways to identify individual stocks with the potential for high growth over the next few months to a year. Now, picking individual stocks isn’t for everyone, but for those who have the time and knowledge to do the research, it can be a way to pursue portfolio growth, and some may even find it fun.
Someone who may not have the time to really research companies and monitor the markets may be better off with a more passive investment style, such as an index fund.
There are four important decisions when it comes to buying stocks. First of all, you need to decide
When it comes to deciding what to buy, it’s pretty research-heavy, but it’s also where you should spend most of your time in this process. Now, due diligence cannot completely protect you from unexpected market reversals as profits are not guaranteed. But it can ensure that you know exactly what you are investing in. After all, Warren Buffett says you should never invest in something you don’t fully understand.
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Investors can use a process called fundamental analysis to better understand a company. You look through a company’s financial statements — like balance sheets — to determine if it’s a good investment.
Think of it like looking under the hood of a car. Like looking at your car’s engine or battery, you can look at financial metrics and ratios to account for your company’s performance. This can help you answer basic questions, such as is this company growing, and help you compare companies of different sizes. For now, we’re only going to look at a few numbers, so keep in mind that this is not an exhaustive list. This is just a sample of some ratios you can look at to get you started.
First, we will look at the growth rate of EPS. EPS stands for earnings per share, which tells you how much a company is making per share of stock.
For example, if a company reported $1 million in revenue and owned 100,000 shares, its EPS would be $10.
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Let’s say a company had $10 per share in earnings per share in 2018, and in 2019 it had $12 per share in earnings. The annual growth of that company would be 20%. This indicates that the company is growing, especially if EPS has grown over many years.
Next we will look at return on equity. ROE can help a prospective investor address a simple but potentially important question. If I am considering investing in this stock now, how has this company performed for previous investors?
Return on equity is a company’s net income divided by equity. Equity is a company’s assets minus its liabilities, so return on equity could be considered the company’s return on its net assets.
Let’s say a company had net income of $10 million last year. Let’s say there were $50 million in assets and $20 million in debt. You take the $10 million and divide it by assets minus liabilities, or $30 million. That would mean this company has a 33% ROI. The higher the ROI, the more efficiently the company is able to profit from its assets, which could mean more growth in the future.
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Next, let’s think about margins. Profit margin can indicate to a prospective investor how well a company is doing at converting sales into profits. Can it keep its costs low and leave room for strong earnings? The profit margin measures how much of a company’s revenue it keeps as profit.
It is usually shown as a percentage. So if a company made a profit of $100,000 on $1 million in revenue, it would have made a 10% profit. More profit often means more potential for future growth.
So now that we understand these metrics, how does an investor find a company with characteristics like strong EPS growth, profitability and profit margins?
Now I’m going to show you how to find stocks that match the characteristics you choose. To do that I’m going to use a tool called Stock Screener.
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Here we are on the home page on the Account Statement page. We’re going to look up Research. Then, under Research Tools, I select Stocks. Now I’m on the Stocks tab on the Research Tools tab and under Find Stocks I’m going to click Stock View. Now, under My Recently Saved Screens, I’m going to select Create My where we can create a screen from scratch. In this case, we’re going to look for the stocks that exhibit the three characteristics we’re interested in. So, here we are on the Create Screen page, and we’re going to focus our attention on this left column. This has categories where you can enter specific metrics to narrow down the list of stocks that meet your criteria.
The criteria you use in your searches depends on your strategy; we are just looking at examples and these are not recommendations for any specific stocks or strategies.
Remember, for this example, we’re looking for stocks that are fundamentally strong and have a good track record of growth over several years. But before we get to those criteria, there are a few basics to address first. We are going to start by searching based on market value.
This basically measures the size of a publicly traded company. You calculate it by taking the current price of a share and multiplying it by the number of shares traded with the public. So if we had a stock that’s at $100 a share and there are 1 million shares traded, we’d say that’s a market cap of $100 million. That might sound like a lot, but it would still fall into the small caps category. And that’s what we’re going to choose as our example today.
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To do that, I’ll open the basic section and then check the market value. Then we choose Small Cap.
To explain why we’re choosing Small Cap for this example, let’s stop and think about what a growth investor is looking for. They hope that the price will go up, up. Obviously, large-caps can also grow in size and value, but small-cap stocks can conceptually have more room to rise.
So that is one criterion that we have chosen. As you can see, that narrows our search down to 953 companies.
Now I’m going to add another criterion, and that’s average volume. Volume shows us how often securities are traded. When volume is high, we know there is potential for more buyers and sellers which means we have a greater chance of entering and exiting trades at the price we want.
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So, under Basic let’s select the average volume (10 days) in this left column. When these criteria come up in our screening, I will choose anything greater than 250,000 below average volume for this example.
In the case of small-cap companies, some growth investors may also want to avoid very low-priced stocks, which can be riskier and more volatile.
So, now let’s add the three basic criteria we discussed and see if we can narrow it down even further. Let’s start with EPS growth.
It depends on the success of the company. We’re going to focus on the EPS growth story for now. We’re going to check the box for TTM versus TTM one year ago. TTM stands for twelve months ahead. Basically, this is measuring EPS from the past
