Stock investments are a lot simpler that what everyone makes them out to be.
The complicated interpretations of the stock market on television and what we see and hear about on the news make it sound a little overwhelming. However, we have actually gone further to discover what it actually entails? Should you a share of Microsoft and you acquire a tiny portion of the software giant, tying your fate to that of Bill Gates, for better or worse? This is actually ownership in the most literal sense: You will get a piece of every desk, chair, contract and trademark in the place. Even better, you own a slice of every dime of profit that comes through the door. The more shares you buy, the bigger your piece of silver becomes.
What makes stock valuable?
The stock market itself is basically a daily referendum on the value of the companies that trade there. You have seen in movies, the way the guys scream at each other? Buy this buy that sell it! Their job is to take in the day's news and simplify it down to one single question: Will it help the companies I own make money long term? If Microsoft had to lose a court battle to the Justice Department, you would see its shares drop. But if strong economic numbers come out promising better PC sales, traders will buy with a vigour and extreme haste.
Earnings or profits are the ultimate measure of value as far as the stock market is concerned. Wall Street is obsessed with the very thought of the words. Companies report their profits four times a year and investors crunch down on these numbers – expressed as earnings per share – trying to gauge a company's present health and potential future.
Fast Earnings & Stable Earnings growth
In today’s market, we thrive on rewards both fast earnings growth and stable earnings growth. Stock traders will have to pay up for a money-losing company that promises to earn a lot in the future (witness 1998's explosion in Internet stocks).
The market does not easily tolerate declining earnings or unexplained losses. Companies that surprise Wall Street with bad quarterly reports and results almost always get punished.