PDSnet Articles

Price:Earnings Growth

Investors buy shares because they anticipate good profits emanating from the company which will, sooner or later, translate into dividends or a rising share price. So the relationship between a company’s share price and its past and expected earnings is of great interest to investors.

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Upside Target

A general feature of the capitalist system is that economies grow. Consumers and businesses are always striving to improve their financial situation by whatever legal (and sometimes illegal) means that they can. It is also true that, in the end, the stock market must always follow the growth of the economy because it constantly discounts the profits of the largest listed companies. Thus the stock market also always trends upwards over the long-term.

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Your Stop Loss Strategy

The idea is very simple. Once you have decided to buy a certain share, you should mark off a price, say, 10% below your purchase price, which will be your stop-loss level (for example, if you intend to buy a share at 1000 cents, set your stop-loss at 900 cents). If instead of going up as you expected, the share goes down, then, when it reaches the stop-loss price, you must sell it, because clearly your original decision to buy was wrong – at least in its timing, if not in both timing and selection. You must acknowledge your mistake by selling the share. In this way you limit the amount you can lose from any particular investment decision. Consider this well-known share market saying,

“If what you expect to happen does not happen, then you are always better off selling sooner rather than later”.

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