Stocks that are in oversold situations typically sell at prices that are well below true value. So what do you do when a stock that you hold suddenly becomes oversold? The first thing that you need to do is do not panic. The reality is that you can use an oversold situation to generate profits from your trades. This is true even if you already hold the stock. The key is to be able to identify when an oversold situation occurs so that you can profit from it.

When you already hold a stock that suddenly becomes oversold, the first step is to try to understand why the stock is oversold. In most situations, stocks become oversold because the market overreacts to what it perceives as bad news. An oversold situation is usually results from panic selling. You can use technical indicators to determine if this is the case, but common sense often prevails. If you determine that your stock is oversold, the best solution is to you buy the stock down. This means that you buy more of the same stock at the lower price, which lowers the total average price that you paid for that stock. When the stock increases in value so do your profits.

If the stock is under heavy pressure and you determine that the price per share will fall a lot more, then it may be best to simply sell the stock and cut your losses. However, if you are in it for the long haul and can ride the waves you should hold your position. Just remember that we all win some and lose some on occasion, so don’t be afraid to cut your losses and move on when you have to.…

It’s important to note that investing in the stock market is not all about finding shares that are most likely to double or triple in market value over a short period of time. Although that would be nice, it’s very difficult to pick winners solely based on this methodology. That is why there is more to stock market investing than simply trying to pick winners in the rapid growth game. It’s called seeking the stock dividend.

As alluded to above, the main philosophical division among stock market investors is in the decision to invest in a growth stock or dividend stock. A dividend is portion of an organization’s earnings that is paid out to shareholders periodically throughout the year. Most of the time dividends are quoted as a percent of the share price or dividend yield. From the most basic  perspective, if an organization pays a $1 dividend and is trading at $10 per share, the dividend yield would be 10%. Dividends are typically paid quarterly.

When picking stocks, you should always remember the dividend. It is certainly possible to invest in stock that is both growth oriented and pays a dividend. However, keep in mind that when a company pays a dividend they are not reinvesting the money in research, development, and future growth. So, ask yourself: “what are dividends and how important are they to my investment strategy?” If all you want to do is eventually sit back and collect dividends, then remember the dividend stock. It’s the gold of stock market investing.…

Market capitalization (or market cap) is a useful descriptive metric for stock market investors. It is a metric that describes the size or total market value of a corporation. Market capitalization is calculated by multiplying the current share price by the total number of shares outstanding. For example, if the current share price for a given stock is $100.00 and there are 10 shares outstanding for the corporation, then the market capitalization for the corporation would be $1,000.00. Below is one example of a breakdown of classifications based on market cap:

• Mega Cap
• Large Cap
• Medium Cap
• Small Cap
• Micro Cap

To a stock market investor, market capitalization helps with a variety of important aspects of investing. One of the most notable aspects is in the development of investment portfolios. Although neither a mega cap nor a micro cap corporation can be classified as a good or bad investment without looking at other metrics, market cap can help by giving an investor insight into the profit potential and risk of an investment. Generally speaking, mega caps have less risk and less profit potential while micro caps have more risk and more profit potential.…

Try answering this question: How do I know if I should invest in the stock of a specific company? Regardless of whether you are a novice or seasoned investor, this question is probably one of the most frequently asked questions in stock market investing history. Contrary to popular belief, the answer to question is relatively simple. It is the same thing that you do when you decide to purchase a house, car, cloths, or anything else. Do you know what it is yet? The answer is find value.

That was easy, wasn’t it? All you have to do is find value! Well, that’s actually the hard part. What is value? How do I know if buying shares of stock at the  current price makes sense? These questions are the harder questions to answer and are typically the questions that scare investors. However, In order to become a successful investor you must get comfortable with the concept of finding value.

So, how do you find value? There are several tools available that can help you answer that question. One of my favorite tools is the P/E Ratio. Remember that share price alone does not tell us much about the value of stock. However, when taken together with a company’s earnings you have a metric that can tell you whether or not a stock actually has value. A good way to look at it is if the P/E Ratio for the company is significantly higher than that of the S&P 500, then the stock is probably overvalued. If the P/E Ratio for the company is significantly less than that of the S&P 500, then the stock is probably undervalued. If the stock is undervalued then that is a good stock pick. It’s as good as gold!

I know that this is oversimplifying it, but for the most part the P/E Ratio one of my favorite ways to quickly and easily find good stock investments. Stay tuned for more!…