Saturday, April 20, 2024

5 Ways to Improve Your Investment Decisions

Stock markets are currently reaping the highest returns compared to bonds or physical assets, given the fluctuating economic recovery and historically low interest rates.  As the United States and European economies emerge from the pandemic-driven recession, benchmark indices such as S&P 500 and GB100 continue to hit record highs.

Over the past year, stock markets have remained bullish, with cyclical and tech stocks trading near their all-time highs. With strong job growth and consumer spending amid substantial pent-up demand, the global equity market is expected to remain upbeat in the near term.

However, investing in stocks can be tricky, especially now, as social media has become a major force influencing such decisions. Therefore, in order to generate sustainable gains from investments and avoid losses from “pump and dump” schemes, investors should conduct thorough research on potential stock bets.

Here we take a look at five ways that can improve your investing decisions:

Read Quarterly Earnings Report

Companies are legally required to publish their financial statements every quarter.  These give investors a comprehensive idea regarding a company’s growth over a three-month period. Comparing a business’ key metrics such as revenues, net income, and cash flows on a year-over-year or sequential basis helps investors gauge the stability and growth potential of such companies.

Platforms such as Plus500 UK publish quarterly earnings reports of the majority of the publicly traded companies, allowing investors to make calculative bets. Moreover, companies often provide forward-looking guidance regarding the future performance over the next few quarters, which are crucial for forecasting their short- and long-term growth prospects.  

Keep an Eye Out for Business Development Measures

Companies announce any latest business developments through periodic news releases in accordance with federal securities laws. These developments highlight a company’s business-related decisions, such as mergers and acquisitions or the launch of a new product. Information regarding additional debt and/or equity offering or repurchases is also released by companies. 

In addition, management generally adds their views on such developments, which helps investors judge the impact of such operational and structural changes. So, reading these press releases should allow investors to make a sound investment decision based on such business development measures.

Note Management Stake

The Board of Directors and senior management have to disclose their holdings of company stock, as per regulations of SEC and FCA. Such insider ownership provides an insight into management forecasts regarding a company’s performance in the near term. If a stock’s insider holdings rise, it indicates that management expects the company to do well over time. Conversely, a declining proportion of insider holdings of a company often points to struggling business conditions. 

Also, if management has an equity stake in a stipulated company, they are motivated to work more efficiently to improve the organisation’s performance in order to maximise their returns. Thus, noting such insider holding patterns can help investors speculate a publicly traded organisation’s growth potential.

Skim through Financial Journals

Keeping up with the latest market developments can help you identify the key industries likely to grow at an explosive pace in the future. For example, the rising demand for electronics and digital transformation has triggered a semiconductor shortage worldwide. This has resulted in billions of dollars of private and government investments in this space, positioning the chip industry to emerge as one of the biggest players. 

Financial journals such as CNBC, Reuters, and Bloomberg highlight such developments in domestic and international markets, allowing people to make well-informed investment decisions. Such websites also highlight the economic implications of the current geopolitical scenario, which help investors identify key investment opportunities in international markets.  

Keep Updates on Latest Government Policies

Federal government policies shape the macroeconomic scenario, and therefore, heavily influence stock markets. To illustrate, the near-zero benchmark interest rates in the developed countries have resulted in higher equity trading volume. People are shifting from safe haven assets to stocks to generate higher returns on investment. 

Also, the United States Senate recently approved a US$2 trillion infrastructure package, following which, stocks of construction-oriented companies rose. As investments in these industries should propel their revenues and earnings, investors are expected to benefit from higher total shareholder returns. These updates are periodically released on government websites and press releases and are covered by reputed business journals. 

Bottom Line

Despite the bullish market trends, the rising cases of the Delta variant of coronavirus have resulted in surging volatility in the markets as investors hesitate to undertake substantial investments in fear of incurring huge losses. 

However, strategic investments in a highly volatile market can reap substantial returns, provided investors pick fundamentally sound stocks. Tracking a company’s financial performance can help investors identify its prowess and market dominance, as well as the ability to streamline its operations amid a pandemic. 

Following the highlighted methods mentioned above should help retail investors maximise their total returns over an extended period.

Claire James
Claire James
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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