Now, you hold the sharesWhat next? The Golden Rules Of Portfolio Management And How To Minimise Risk Don't put all your eggs in one basket There is risk involved in investing in any share, more so for some than others. The best way to manage those risks is to spread your money across a range of shares (and more broadly, to diversify across forms of investment). The extent to which you spread money across shares and the particular companies selected will reflect your attitude towards risk. Higher returns come only with higher risk. The right balance will exist for you, depending on your goal and particular approach to the market. Some companies represent lower risk, for example larger, established companies with steady cash flows and profits. These can be contrasted with, for example, start-up businesses in certain sectors that lack profits today but offer exciting growth in an uncertain future. If you have a "get rich" goal, your choices may be weighted toward high risk, high return shares.
Choose the Right Asset Mix When you begin to implement your personal investment strategy, one of the first things you and your stockbroking company must decide on is the asset mix you will put into your portfolio. There are three basic categories of investment products or assets: equity investments, debt investments, and cash or cash equivalents. The combination of these three types of products in a portfolio is called the asset mix. The asset mix that you choose will be important in establishing the overall risk and the expected returns of your portfolio. Allocating your money among the three types of investments is another way to diversify your portfolio and ensure you are getting the best return for the level of risk you are taking. While many investors focus on the performance of specific investments, it is generally agreed that the overall asset mix in a portfolio has the biggest impact on long-term results. The right asset mix will depend on your investment objectives. Asset mix is an important part of your personal investment strategy and should be explored in great detail with your stockbroking company.
Recognize the Limits of Your Investment Knowledge Before investing your hard earned money, you should assess your own investment knowledge and experience. Be honest with yourself and with your stockbroking company. Overestimating your investment knowledge will make it far more difficult for your stockbroking company to help you. Avoid investment products or investment strategies you don't fully understand. If you have questions about an investment recommendation be sure to have them answered before you make your decision. And ensure you understand the answer.
Understanding newspaper share tables
You can track share prices and investment performance in the major newspapers. Newspapers provide daily information on share prices, sales and market movements. The format of newspaper share tables varies at the discretion of the newspaper.
On-line Research The Internet can be an invaluable tool for investors and offers a wealth of information about financial markets and personal investing. You will find hundreds of sites dedicated to investing and investments - but be discerning.
Check out Internet information, particularly promotional information and investment advice, with other reputable sources.
Company Analysis and Financial Statements Company analysis is the means by which investors and their stockbroking companiess seek to arrive at the best investment decisions. By analysing past performance and the state of today's business, analysts attempt to predict what is likely to happen tomorrow to a company's profits, cash flows and ability to pay dividends.
Company analysis can be a quick check on financial health and profit prospects, or painstaking research using all available facts and figures. Professional analysts build numerical models for predicting profit and other factors several years into the future. This enables current valuation on the shares, and in turn, comparison with current market prices. The analyst provides an opinion on whether a company's shares are under or overvalued, which will ultimately lead to a "buy", "sell" or "hold" recommendation on the company. At its simplest, company analysis focuses on the following key financial ratios: • Price/earnings ratios (or P/Es) - the current share price relative to the company's profit. • Dividend yield - the rate of return from dividends. Financial Statements, namely Annual reports are valuable sources of such information that can help you make more informed investment decisions. In addition to a company’s website, prospectus, and continuous disclosure documents, the annual report (and quarterly reports) offers investors the most comprehensive picture of a company’s financial status, describing the company’s current activities, future opportunities and how it is performing compared to its competitors. The first step in making sense of an annual report is to understand the major sections and what kind of information to expect from each. An annual report will contain an overview of the business, financial highlights, and a management discussion and analysis. Financial statements are an essential part of an annual report. The principal components of the financial statements are: the balance sheet; income statement; statement of changes in shareholders’ equity; statement of cash flows; and footnotes: • The balance sheet portrays the financial strength of the company by showing what the company owns and what it owes on a certain date. It can be thought of as a snapshot since it states a financial position as at the end of the statement period;
• The income statement, on the other hand, is like an entire movie since it reports on how the company performed during the period and shows whether operations have resulted in a profit or loss; • The statement of changes in shareholders’ equity reconciles the activity in the equity section of the balance sheet from period to period. Changes in equity are commonly the result of company profits or losses, dividends, or stock issuances; • The statement of cash flows reports on the movement of cash by the company for the reporting period; • The footnotes provide more detailed information on the balance sheet and income statement.