Things to look for in your next investment

If you are a new investor, it is easy to become overwhelmed by the world of investing. This is especially true if you are trying to choose the right investment. However, there are several characteristics that you look for in your next investment that can help you make the right choice for your investing strategy. So before you make your next (or first) investment purchase, here are some things to look for in your next investment-

• Why do you want to invest in this company?-Before you make a single stock purchase you should yourself why you are interested in investing in that particular opportunity. You must remember that it can be financially dangerous to fall in love with a business and buy into it, solely because you feel fondly for its products or people. You must remember that the best company in the world is a lousy investment if you pay too much for it. You want to make sure the fundamentals of the company (current price, profits, good management, etc.) are the only reason you are investing. If you are basing your investment on anything else (like your emotions); this leads to speculation rather than intelligent investing. This requires patience and the willingness to walk away from a potential stock position if it does not appear to be right for your investment strategy.
• What is the price of the entire company?-Research is the most crucial part of purchasing investments. One of the first things you should do is look at more than just the current share price. It is important to understand that you need to look at the price of the entire company. The "cost" of acquiring the entire corporation is called market capitalization (or market cap for short) and is frequently referred to by financial professionals. The basic definition of market cap is the price of all outstanding shares of common stock multiplied by the quoted price per share at any given moment in time. For example-A business with one million shares outstanding and a stock price of $50 per share would have a market cap of $50 million. The reason this is important is that the market capitalization test can help keep you from overpaying for a stock.
• Is the company buying back shares?-Investors must remember that one of the most important factors when investing is that overall corporate growth,is not as important as per-share growth. This is because a business could have the same profit, sales, and revenue for five consecutive years, but create large returns for investors by reducing the total number of outstanding shares. To help illustrate this point, think of your investment like a large pie. Each slice of pie represents one share of stock. Would you rather have part of a pie that was cut into ten slices or one that was cut into eight slices?The same principle is true in investing. When the corporate "pie" is cut into fewer pieces, each share represents a greater percentage ownership in the profits and assets, of the business. Investors should be aware that many management teams focus on domain building, rather than increasing the wealth of shareholders.
• Are you willing to own the stock for the next ten years?-Successful investing has a time factor attached to it. The bottom line is that if you aren't willing to buy shares in a company, and forget about them for the next ten years, investing is not for you. The guaranteed way to invest successfully, has historically been to select a great company, pay as little as possible for the initial stake, begin a dollar cost averaging program, reinvest the dividends and leave the position alone for several decades.