Monthly Archives: August 2013

Risk is the Downside

When purchasing common stocks, the name of the game is risk avoidance.  If you avoid losing money, you stand to do well in the stock market.  You buy a stock to achieve a return, but achieving a return depends on buying quality stocks when they are trading at bargain prices.  That is, you make a good stock investment when you buy stock in a solid company that is underpriced.  When you do this, you have minimized risk by minimizing your potential loss.  If you want to achieve good returns consistently, don’t focus your attention on the possible return; focus on minimizing your risk of loss when you buy.

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August 12th, 2013|Balance Sheet, Buying, Equity, Risk, Stock|0 Comments

Buying Common Stock is Buying Company Equity

We often hear the question, “how much equity do you have in your home?”  The term “equity” refers to ownership.  If there is a mortgage on the home, the total equity is shared by the borrower and by the lender.  That is, the borrower has an ownership stake and so does the lending institution.

When you buy a share of a company’s common stock, you are buying a share of equity because you are purchasing an ownership interest in that company.  How much is the equity stake worth when you buy?  That is, how much is the share of common stock really worth when you buy it?  You must be able to adequately answer that question before you buy; otherwise, you may overpay for the stock.  Overpaying can lead to painful losses.  Conversely, knowing the approximate worth of a stock and buying it for less than that worth can result in healthy investment gains.

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August 11th, 2013|Balance Sheet, Buying, Equity, Stock|0 Comments