You probably know the basics in investment strategy, but the most overlooked part of a stock’s fundamentals is the stock’s fundamentals. That is, if there are two factors in favor of any business (such as its stock price), you should pay the higher price. That may be true for all stock types, but there are certain types that are better positioned to gain. That is why the best time to buy a stock on the Internet is when a company’s fundamentals are rising dramatically, which is the case with Google and Facebook.
The chart below looks at the most recent weekly high and low for each one of the four tech companies listed above. The blue line represents Google and Facebook, and the red line represents Microsoft, Apple and Yahoo. This chart is just a simple graphical representation of the average price/book and represents the percentage share of market share the companies hold.
Google’s growth has been dramatic, but not nearly as remarkable as what Microsoft and Apple have seen. The average price/book for the four companies today stands at about $120 (not including dividends and the stock’s dilution effects).
This simple chart shows how stock price is determined by fundamentals. Facebook has grown faster than Google, but since then we’ve seen its stock fall over 10%. Meanwhile, Microsoft and Apple have continued to grow at a rapid pace. If you put the five companies on a market share chart (as I did above), the result is a picture that looks quite different:
The most important factor is your risk tolerance. People who don’t like investing can throw up their hands and say that none of this matters. They’re wrong. It’s not about making money, it’s about picking stocks that generate high returns. And that’s where the risk comes in.
The risk factor is determined by an investor’s desire to see a return. If you’re looking for a certain company to invest in, the best way to do this is to find companies that will be successful, but in a limited amount of time and risk. Google, Facebook and a dozen other stocks like it are very good investments because they are doing well, but in no time at all. When the stock rises, the return on the investment (in money that a person has earned) will be more than even the stock does at the time its price is rising. (Google is at around $500 right now, but the amount of profit made from its stock is less than $20 a year.) The companies are trading at record prices because they have increased
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