Useful Information for new investors

[Geeman]

Apart from the introductory e-book given on registration to become a member of this forum,there are other useful materials that the new investor will need to acquire the necessary skills to play the market confidently. This thread is started with this purpose in mind. More than that, the seasoned investor needs to be constantly reminded of the basic rules of the game. The first post is the key questions that an investor should ask before investing in any company.Stocks: Investors urged to ask key questions

[lca2000_nl]

I thought this might be useful particularly for beginners.
linda

[tellmemore]

Geeman
Good one. In the article it said "the P/E ratio, can help know the number of years it will take an investor to recoup his investment based on dividend payments alone".

For instance as at 24th October NAHCo's P/E Ratio was 29.24 does it mean it will take an investor 29.4 yrs or months to recoup his investment if he bases on dividend?

[phoneworks]

I am looking for a company where I can register with the sum of 10000 naira. Thats the amount I have.

[pumping]

Originally Posted by tellmemore

Geeman
Good one. In the article it said "the P/E ratio, can help know the number of years it will take an investor to recoup his investment based on dividend payments alone".

For instance as at 24th October NAHCo's P/E Ratio was 29.24 does it mean it will take an investor 29.4 yrs or months to recoup his investment if he bases on dividend?

If you base it on dividends alone, then for most companies you will be looking at 40+ years!! This is because most companies pay around 2% (+ or -) of the stock value as dividends. If this was the case, the company will have to pay all earnings as dividends.

It is actually based on the earnings per share. Part of this may be paid out as dividend and the company can retain the rest for expansion or to be deposited in the reserves of the company. This part is really what is responsible for the appreciation of the stock in the market to reflect that the company is growing and may also have future growth potential.

So in the example above, it means it will take 29.24 years for you to get your money back if the companys generates earnings at the same rate it does today into the future. A very long time to wait for your investment!! It really allows you to think twice before buying a stock!!

The good thing is that many compnanies will grow and generate more earnings as the years go by so you may not have to wait that long to get the value of your investment back. That is why a lot of emphasis is placed on the potential of a company to grow. It is why some stocks will still be bought though the PE ratio is high. So it is not enough to just buy a company because the PE ratio today is good. The projected PE is even more valuable to the investor.

At least one thing that can help right away. Don't buy a company with high PE ratio and which does not have good growth potential. So if PE is high, as in the case of NAHCO, you have to find out if the company has the potential to grow to reduce this PE ratio in the near future.