Yahoo Finance An Investor's Guide to Understanding Market Research
In today's world of information overload, we can access reams of data and information on every topic under the sun. Consumers can crowdsource facts and opinions to help make almost every decision, such as where to go on vacation, picking which doctor to use or finding the "hottest" security on the market. But when it comes to investing, having an abundance of information may actually be detrimental to an investor's ability to plan for the future. In fact, when we speak to investors, many express a desire for basic tools to research and weigh investment decisions, and say they prefer simple charts and news to complicated products.
According to the 2014 Consumer Financial Literacy Survey, prepared by Harris Poll, which surveyed 2,016 adults over age 18, nearly 40 percent of adults give themselves a grade of C, D or F on their knowledge of personal finance and a vast majority (73 percent) agree they could benefit from professional advice for everyday financial decisions. This tells us there is a real need for straightforward research products that support everyday investors, as they work to understand the markets and make decisions that may help them reach their goals.
Here are some tips that may simplify your search for the right tools and information as you plan your financial future.
1. Understand the basics. Identifying the right securities to invest in should entail more than picking the brand you love or the product that's getting the most buzz in the media. Take time to review and select the securities you believe will help you reach your goals. And before investing, review and understand the following key performance indicators:
Earnings per share (EPS): This refers to the amount earned on each share of stock over the past 12 months and can give you an indication of earnings trends. It's an important tool for an investor to evaluate how a company stands up against its peers. Each company has different amounts of shares owned by public investors, so comparing earnings-to-earnings doesn't indicate how much each company made its investors per share, but comparing EPS gives you a better sense of the picture.
Price-to-earnings: This is a valuation ratio comparing a stock's current price to its per-share earnings over the past 12 months. This is often measured against other stocks in an industry to compare whether a stock is undervalued or overvalued.
Price-to-sales: It is calculated by dividing the current price per share by the company's revenue per share. For investors, this offers a "streamlined" look at a company's revenues, and some analysts prefer this metric because it doesn't consider expenses or debt.
Price-to-book: This ratio compares a stock's market value to its book value. Divide the price per share by the last quarter's book value to arrive at this number. Book value is a company's assets minus its liabilities on a per-share basis. It's a big indicator for a company whose primary value is due to its assets (an energy producer or a bank, for example).
Quarterly dividends: There are profits companies generally distribute to their shareholders, usually in the form of dividends. If receiving dividends is a key part of your investment strategy, you need to know how much to expect from a possible investment (and if it has a history of suspending dividend payments).
Annual dividend yield: It shows how much a company pays out in dividends each year, relative to its share price.
2. Use additional building blocks. Once you understand the popular metrics used to measure investment performance, you may want to expand your resources to include more in-depth company research. Other types of information that can help an investor understand a company's performance and investment potential include:
Public financial statements. Any quarterly or annual Securities and Exchange Commission filings contain a host of information about how a company has been performing, along with performance expectations for the future. Although these documents are often chock-full of information, it can sometimes be buried deep in a filing. You may want to supplement your review of these filings with reports by analysts who have a good track record for examining financials or a news service you think does a good job of drilling down to find more obscure information.
Comparative performance. Many investors want to know how a company ranks in terms of its competitors. ShareBuilder's tools, such as Investment Screeners and Compare Investments, offer a number of ways for you to assess companies, mutual funds or exchange-traded funds, using metrics that include the key statistics we discussed earlier.
3. Find the right tools. Next, find information providers that you trust. Make sure these trustworthy sources separate data from opinion, and that you know the difference. You can find free tools, tutorials, research and education to help beginner to advanced investors make smarter decisions through ShareBuilder's Knowledge Center. These types of resources will offer insight into how the markets, sectors or companies you are interested in are performing on a given day and over time. As you begin to use these tools, you'll establish a "research routine" and learn which sources help you best understand the markets. This routine may help you create or manage an investment strategy that may help you reach your goals.
4. Draw your own conclusions to support your strategy. There are many ways an investor can use research tools to make more informed investing decisions. Taking a look at a company's analyst rankings and reviewing company news can provide additional background on your potential investment. Although the whole story isn't in how an individual analyst ranks a company, or in the company's own reports, being able to digest all of this information and arrive at your own conclusions may help you become a more informed and confident investor.
To avoid becoming overwhelmed, use a trusted investing hub to help centralize your research, and keep track of analysis, news and market data. This may offer you a manageable way to make informed investment decisions without having to spend hours digging through piles of information. Establishing trusted resources and finding reliable tools may help you feel empowered as you build out your investing strategy.
Remember to start by determining which tools you feel most comfortable and confident using before moving to resources that may be more complex. After all, before you go exploring, it's important to have your base camp set up.
Securities are offered by Capital One Investing, LLC, a registered broker-dealer and Member FINRA/SIPC. Advisory services are provided by Capital One Advisors, LLC, an SEC registered investment advisor. Insurance products are offered through Capital One Agency LLC. All are subsidiaries of Capital One Financial Corporation.
ShareBuilder and Capital One ShareBuilder are marketing names for Capital One Investing, LLC. ShareBuilder and Capital One ShareBuilder are marketing names for Capital One Investing, LLC. ShareBuilder 401k and ShareBuilder Advisors are the marketing names for Capital One Advisors, LLC.
Dan Greenshields is president of Capital One ShareBuilder. In his 12 years with the company, Dan has served as CFO, an executive officer and also as a member of the board of directors prior to joining full time as an employee. Dan is a Chartered Financial Analyst and a member of the Seattle Society of Financial Analysts.
More From US News & World Report
