For every stock that you own, you must spend at least one hour per week for each stock. Even though the balance sheet and the company’s growth was on the right path when you first bought into the company, that doesn’t mean it will continue on the same path. The company may decide to go into a different area to try and grow the business, It may work in the distant future, but that doesn’t mean that it will help in the near future as it ay reduce their revenue for the short term. Many other things can also and will affect the stock including the company’s competitors or even the overall markets.

Is the company is a sector that is in favor with investors? Is there another sector that will affect the one that you’re in? If oil goes up in price it will affect sectors like the airline industry in a negative way, but at the same time it could give the alternative energy sector a boost. Like I said, once you understand how sectors affect another you’ll be able to capitalize on the situation.

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There are many words and terms used that you may be unfamiliar with. Here are the meanings of some

This post will cover many of the words and terms that are used when trading stocks. These are only a few but I’ll cover more in upcoming posts.

Cost Basis:
Cost basis is referring to what you pay for the stock. If you were to buy 100 shares at $30 per share then your cost basis would be $30. Now if you go ahead and by another 100 shares as the price drops to $25 per share, your new cost basis would be $27.50 per share (100 X $30)+(100 X $27.50)=$5750.00/200 = $27.50

Incrementally:
When you start to build a position in a particular company, you don’t go ahead and buy all your shares at once. Stock prices rise and fall and the time and if you purchase all your share at on price then the value falls you either have to sell at a loss or hold until the price comes back up in value. Buying incrementally will also help you lower your cost basis.

Diversification:
As you build your portfolio you need to keep in mind that you can’t just buy stocks in one sector. If you were to buy stocks in three companies and all of them were in the energy sector, you would lose a lot of your capital (cash) on a day that the sector took a big loss because the price of oil dropped. The idea is to not put all your eggs (investments) in one basket. What you need to do is have your investments spread out over different sectors. You also need to be aware what sectors effect other sectors (more of that in another post).

Fundamentals:
When researching any stock you need to look at what is referred to as fundamentals. It’s basically the financial information that can be found in a company’s earnings report or annual statements. An earnings report is information that the company puts out quarterly to inform their shareholders of the condition of the company as well as any future guidance.

Long/Short:
At times you will hear a stock analyst state they “long a stock” or “short a stock”. When they refer to “long”, they mean that they are invested in that particular stock for it to go up in value. If they state that they “short” a stock, they expect the company’s stock will go down in value because of one of numerous reason and they’re investing in it to go down in value.

Dividends:
Some companies will give their shareholders a cash payment. This is usually done on a quarterly basis and is given to shareholders that are listed on record at the time of payment.

Yield:
The yield is calculated by figuring the annual dividend divided by the stock price. The yield is referred to in percentage terms such as 5%.

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