Investing strategies

New investors are often interested in purchasing a company's stock, but are not sure where to begin. It can be overwhelming trying to determine what your investment strategy is going to be.Here are four questions that can serve as helpful guidelines, in your search for an investment strategy-

• What is the price of the entire company? When you are doing your pre-investment research, it is important that you look at more than just the current share price. It is extremely important that you look at the price of the entire company. This is because the "cost" of acquiring the entire corporation is called market capitalization (or market cap for short), and is frequently referred to by financial professionals. In short, the market cap is the price of all outstanding shares of common stock that is then multiplied, by the quoted price per share at any given moment in time. This market capitalization equation can help keep you from overpaying for a stock.
• Is the company buying back shares? One of the most important keys to investing is to clearly understand 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. You need to think of your investment like a large pizza. Each slice of the pizza represents one share of stock. Would you rather have part of a pizza that was cut into ten slices or one that was cut into eight slices? Remember that the pizza that was only cut into eight parts will have bigger slices with more cheese and toppings. The same principle is true in business investing. A shareholder should look for an investment opportunity, with a management, that has an active policy of reducing the number of outstanding shares, if alternative uses of capital are not as attractive and making each investor's stake in the company bigger. Then when the corporate "pie" is cut into fewer pieces, each share represents a greater percentage ownership in the profits and assets of the business. Too many management teams focus on empire building, rather than increasing the wealth of shareholders.
• What are your reasons for investing in the company? Before you make any purchase of stock in a company, you should ask yourself why you are interested in investing in that particular opportunity. Remember that it can be a deadly mistake to fall in love with a corporation. You should never buy stock solely because you feel fondly for its products or people. Remember that the best company in the world is a terrible investment if you pay too much for it. You need to make sure the fundamentals of the company (current price, profits, good management, etc.), are the only reason you are investing. Anything beyond this is based on your emotions and this leads to speculation, rather than intelligent investing. You will need to remove your feelings from the equation, and select your investments based on the cold, hard data. This also requires considerable patience and the willingness to walk away, from a potential stock position if it does not appear to be fairly or undervalued.
• Are you willing to own the stock for the next ten years?Traditional investing wisdom states that if you are not willing to buy shares in a company, and then forget about them for the next ten years, you really have no business owning those shares at all. The simple but painful truth of this is evident on Wall Street every day. Investing experts agree that the guaranteed way to success, has historically been to select a great company, pay as little as possible for the initial stock, begin a dollar cost averaging program, reinvest the dividends and leave the position alone for a long period of time.