How to invest in the NASDAQ
Over the years one of the most intriguing factors about online investments has been choosing companies to invest in and the ones not to. NASDAQ stands for National Association of Securities Dealers Automated Quotations which was established in 1971 where it offered an easier way for traders to buy and sell stocks through computers. So far the company brags of over 3,000 traded companies on its platform and more so, works with people from all parts of the world. It’s very easy to invest in the NASDAQ with a discount brokerage like Questrade or a Robo-Advisor like Wealthsimple. But, keep in mind you are not actually purchasing the NASDAQ when you purchase an individual stock ON the NASDAQ. If you aren’t comfortable with self-directed investing, we highly suggest Wealthsimple. You can check out a great Wealthsimple review here.
So it could be you are new to the trade and would like to get a feel of the stock exchange but still debating on if to take the dive or not. There are various guidelines on how to pick companies to invest in. Most of the time, brokerage companies make it easier but considering the fees and the expenses that come with it, it would safer to know how the trade works. Therefore, having a few tips could save you a lot of money in the long run. So these are the facts you need to look out for every company regardless on if its on NASDAQ or not.
1. Revenue Performance
When investing in public companies there are companies that seem to be doing well but are really not doing that well and those that seem to be doing poorly, but their historical performance suggests otherwise. Therefore, the first step is to assess if a company’s revenue is growing or not. If at least for the last quarter the company has not been growing you may want to take a pass. However, you also need to look at its historical performance, if there are indicators that it would plunge only further just move on to other companies. Also if the profits have been on an upward trend, that’s a good sign.
2. Companies’ Earnings Per Share
Earnings Per Share are the profits earned by a company after all its taxes and expenses have been deducted which is meant to be split among its shareholders. Therefore, the higher the EPS the better the chances of making profits with the company and the lower the EPS the slimmer the chances of earning much from it. But for experts it is often said that a company that is temporarily suffering losses a person could buy shares at that price and wait for the company’s performance to improve and then sell them back.
3. Surprise Earnings
For every company there are analysts who will forecast positive earnings or negative earnings. For instance analysts may forecast that Company X would experience a 2% growth in revenue and Company Z could experience a -1% loss in its growth. The surprise would be if Company Z actually experiences a 1% growth while company X experiences only a 1% growth in its income. The company that has a positive growth for over 3-4 quarters would be safer to invest in compared to the others.
4. Growth in Company’s Earnings
Financial analysts often project a company’s performance over an year’s period to over a 5-year period. So a investment forecaster could project an 11% growth in a company’s earnings for over 5-year period or a 1% growth over the 5-year duration. It is mostly advised to invest in companies with at least over 8% growth in earnings in the 5-year term. Such a decision would ensure that even if you invested $1,000 in the company for a period of five years you will earn at least $80 profit compared to making a $10 loss from the forecasts.
5. Earnings in the Industry
Every company that operates in a particular industry can be used as a benchmark based on price-earnings or not. Therefore, if your company is in the real estate industry it would be good and vital to compare its price-earnings in the industry. If the company has a higher price-earnings when compared to its competitors then you would have a good deal going for you.
In other words, there’s a lot that goes into investing in the stock market and sometimes, it is safer to understand how the stock market works first before placing any money on it. However, if you feel you need to invest in shares you could start with money you feel you wouldn’t be afraid of losing. Most of the time, analysts advice starting with $100 and see how well it does. If possible use the returns on the initial amount to invest more in the company.