Everyone talks about the stock market, so you may ask yourself, “Should I buy stocks?”
Historically, investing in stocks has been a great way to build wealth. But how do you know how much you should pay for a stock? If the price is always changing, how do you know you’re getting a good deal? It all boils down to the main question: Why should someone even buy a stock at 90 or more times earning?
When trying to evaluate a stock, there are many factors to consider. Perhaps the most important point to keep in mind is “what will the future income of the company be?”
This week’s show focuses on how to understand a stock’s earnings. Doug and Efraim present easy to follow example, to help you understand the core issue.
For example, buying a stock for $10 a share when the returns are $1 per year, may seem like a bad investment (because you lose $9) but, in year 11, you (hopefully) will profit $1.
Why are people willing to pay more than what they are getting? Quite simply, it’s because they are optimistic and believe that in the years to come, they will make their initial investment back… and then more.
Efraim is a business student, former IDF officer, and an entrepreneur, head of “A Day with an Officer.” Contact him at: firstname.lastname@example.org