A Horse that can count to 10 is a great horse, but not a great Mathematician” – Warren Buffett.
You probably have a little bit of your money saved up. Maybe you have signed for the 401k fund. Perhaps, every investor who wants to enter the stock market thinks about how they can double the sum of investment laid out.
Perhaps, the most common dilemma that most investors face in today’s time is the question to understand, if they should buy a stock even though the money is too expensive?
Whatever the case might be, you have to understand that it is too easy to lose all you have gained in the stock market. Does not matter if you are playing at the New York Stock Exchange or even at the NASDAQ, you are bound to lose some money if you don’t pay much attention. Also, if you are starting for the very first time.
Whether the investor is an amateur or professional in the field, the question almost remains the same here. There is a closer look into the measuring metrics of a stock such as a price to earnings or even price to multiple bookings.
Losing money is not as you think it is
After hearing all these, you might be feeling the dread to invest anymore? Well, it is not as grave as you think. We are all sure that the last thing any investor wants to check out and see is to lose money while they are investing.
You have to understand something. It does not matter the sum of investment you have put into the trading. Depending on the various metrics, you can lose money into the market that can take a different form. This is mainly called the Trading Sideways.
Here is a deeper study into the valuation:
A deeper study in the market reveals certain things. It tends to value various companies depending on different factors. We have clubbed the three factors in the following list:
- Return on the complete capital employed.
- The growth or the earnings of the company.
- The associate cost of capital of the company on the discounting factors.
Companies that have excellent performance scores in all the three factors mentioned are the market leaders. Their growth and innovation are admired.
One factor that also changes the trajectory of earning from the stock growth is when the company hits its goal. Those who are facing a higher revenue at a higher rate are pacified into the growth structure.
Understanding costs in the stock market:
There is always such a thing as opportunity cost into the market. In short, it can be said like, if you have invested money into something that could have potentially valued your investment, then technically it cannot be called an investment.
In terms of opportunity cost, let me explain how it works. Suppose there are two hypothetical stocks. Stock A and Stock B. You have invested in Stock A without thinking but now you think that investing in Stock B would have been a better option for you. If it is found that investing in Stock B would have yielded a net positive amount of gain of 10% of the real investment apart from the 20%, then you are losing money.
Export traders do it all the time. It is about cutting the losses which you can acquire upon not choosing to invest carefully. For example, most of them come at ten and thousands of dollars but the bet does not pay off. This is what traders neglect or avoid the most. From any side, you should always avoid trading sideways. It can cut your losses and also decreases your chance of earning higher rates.
The bigger picture
Finally, to truly demystify the stock market and notions, you need to have a positive outlook and change your attitude.
We are talking about impatience. A lot of traders are impatient and this can cost them a huge loss in the future stages. Stocks that come in at a hundred can get you all the time. It is advisable to wait out and better understand the fluctuation of the market price. The problem is fighting your greed and hunger and settling down with the bare minimum at first.