Hello readers, we are happy to announce that our
team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A For Stock
Market Newbies”, to spread the basic stock market knowledge to the
beginners.
This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.
Day 4: Basic Stock Market
Concepts
1. What
is 52-Week High and what is 52-Week Low?
52 week high is the highest share
price of a stock for the last 52 weeks at which price point the stock has
traded. 52 week indicates a full calendar year. Market participants consider 52 week
high as a bullish indicator for determining a stock' current value and take
decisions accordingly. They believe that if a stock trades at or above 52 week
high, it indicates a bullish trend for the upcoming future.
52 week low is the lowest share
price of a stock for the last 52 weeks at which price point the stock has traded. 52 week indicates a full calendar year. Market participants consider 52 week
low as a bearish indicator for deciding the current value of a stock and take
decisions accordingly. They believe that if a stock hits 52 week low and trades
below it, it indicates a bearish trend is coming in near future.
2.
What is All-time High and what is All-time Low?
The concept of All time high and All
time low is similar to 52 week high and 52 week low. The main difference is
that the all time high price point is the highest price point at which the
stock had traded since it was listed in the exchange.
Similarly, all time low price point
is the lowest price point at which the stock had traded since it was listed in
the exchange.
3.
What is Upper Circuit and what is Lower Circuit?
The terms upper circuit and lower circuit are used in the stock market to define a maximum and a minimum price levels that a stock can be traded on a trading day. The price bands are fixed up by the exchange to control the excessive volatility and curb the market manipulation.
The highest price the stock can
trade on the day is the upper circuit and the lowest price the stock can reach
on the day is lower circuit. The price band limits are set as 5%, 10%, and 20%
based on the criteria of the exchange.
𝟰.
What is a Growth Stock?
A growth stock belongs
to a company expected to grow at an above-average rate compared to other
companies. These stocks typically reinvest earnings into the business rather
than paying dividends, and investors expect future capital gains.
𝟱.
What is a Value Stock?
A value stock is
considered undervalued in price relative to its fundamental metrics, such as
earnings or book value. Investors buy value stocks with the expectation that
the market will eventually recognize the company’s true worth, which will be
reflected on price appreciation.
These stocks are
undervalued in the sense that the current trading prices are lower than the
actual intrinsic value of these shares making them attractive to invest in
these stocks.
𝟲.
What is a Dividend Yield?
Dividend yield is a
financial ratio that shows how much a company pays out in dividends each year
relative to its stock price. It’s calculated by dividing the annual dividends
per share by the stock's current price, expressed as a percentage.
Dividend yield is the
financial ratio which indicates the percentage of a company's share price
paid as dividends to the shareholders. Suppose, the share price of a company is
Rs.20 and it pays a dividend of Rs.1 per year, then the dividend yield will
be 20÷1=5%.
𝟳.
What is Dollar-Cost Averaging?
Dollar-cost averaging
is an investment strategy where you consistently invest a fixed amount of money
at regular intervals, regardless of the stock's price. This approach helps
mitigate the impact of market volatility over time. The principle is to apply
value investing principles into regular investment.
8. What is a Penny Stock?
A penny stock is a low-priced,
high-risk stock of a small company, whose market capital is very low, typically
trading below Rs.10 per share in India. These stocks are often highly
speculative and prone to price manipulation, making them risky investments.
These stocks are often traded over the counter (OTC) due to non compliance of
minimum listing requirements.
9. What is a Dead Cat Bounce?
A dead cat bounce refers to a
temporary recovery in a stock's price after a significant decline, followed by
a continuation of the downward trend. It is often seen in reputed companies
stocks or in indexes as a short-lived rally during a bear market.
10. What is the Difference Between Active and Passive Investing?
Active investing involves selecting
individual stocks or other assets with the goal of outperforming the market.
This type of investing requires profound market knowledge and constant
monitoring. Passive investing involves buying a diversified portfolio often
through index funds, to match the performance of a market index, with lower
fees and less frequent trading and less monitoring.
If you have any other questions in your mind relating to
stock market basics or need any clarification, please put your query into the
comment box, We will try our best to clarify the same.
Disclaimer: The information provided on MoneyWiseMind is for
educational and informational purposes only. It is not intended to be financial
advice, and you should not rely on it as such. Before making any financial
decisions, you should consult a licensed financial advisor.
𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: Last Week's Topic
Weekly Q&A For Stock Market Newbies: Part - 3
