How to Interpret Stocks
You may purchase stocks to provide for college tuition, save money for retirement, and ultimately improve your standard of living. For financial success, you should learn to interpret stock market performance as you build wealth. Interpreting stocks begins with an evaluation of real-time price information from the ticker. From there, you can make decisions on whether a particular stock meets your objectives. Advances in technology allow you to access real-time information via the financial media.
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Instructions
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Make a list of the stocks you currently own alongside the amount of money invested within each stock. If you own stocks through mutual funds, you can read your funds' latest reports for a list of their top-10 stock holdings. The depth of your research relates to the size of each investment. In addition to stocks that you already own, you should also identify stocks that you may be interested in buying.
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Identify U.S. stock market benchmarks as the S&P 500, Dow Jones Industrial Average and NASDAQ Composite Index. The S&P 500 and Dow are composed of large corporations such as Wal-Mart and Monsanto. Meanwhile, the NASDAQ tracks the technology economy--with stocks that include e-Bay and Amazon. Your portfolio is likely to be making money when all three major indexes advance.
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Monitor the stock market ticker for real-time price quotes and daily changes in value. Financial media companies Bloomberg and CNBC stream the stock ticker to viewers throughout the day. These companies also have websites, where you can retrieve current stock quotes. A stock has made a significant move if its price has changed by 1 percent during the trading session.
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Follow news related to an individual stock to determine the reason for its daily movement. A strong earnings report and dividend increase often translates into share price gains. Alternatively, a stock may lose value if a long-time CEO decides to retire. Corporations release news to the public through their respective investor relations departments.
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Scan stock tables for basic valuation information, such as price-to-earning (P/E) ratios and dividend yields. A P/E ratio compares a stock's current share to its earnings per share, while dividend yield describes the percentage of your principal investment that you can expect to receive in dividends. As a conservative investor, you may prefer stocks that feature low P/E ratios and high dividend yields. Alternatively, aggressive growth stocks often carry high P/E ratios and pay minimal dividends, if any. "The Wall Street Journal" publishes stock tables every day, which summarize the prior session's trading action.
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Read annual reports. You may request an annual report through corporate investor relations departments. Annual reports detail business earnings, assets, debt and cash-flow statistics. From there, you may determine whether a stock makes for a suitable investment.
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