Day 121 The CCP method for new investors

The CCP method for new investors

Many new investors like me would like to ask one question: “Where do we start to analysis the stock market?” In my opinion, there are three major factors require our attention: the market’s confidence, the movement of majority funds, and the company’s performance. I recommend these three elements since they are the easiest figure to capture. They do not need high level of proficiency on financial analysis, but still remain as the key drivers of the share price variation. Consequently, new investors those are unfamiliar with the market would be able to acknowledge the trend with the market and make corresponding decisions.

So how do we predict the market confidence on a specific stock? On my perspective, we should learn to interpret news in the market. For example, the IPO approved the consolidation of China North and South Railway Corporation, which leads to a several days increase on these companies' share prices. The market is full of information, and we ought to determine whether the information is relevant or not. However, it is crucial for us to acknowledge that the market does not necessarily respond to that news. Hence we should be able to find out the scope of the possible influence before we make any decisions.

In addition, the movement of majority funds will have a significant impact over the share value. Since the weight of these funds is extremely high, the share price is expected reacts according to the inflow/outflow of it. As a new investor, my suggestion is to look at the stock monitor that records the large fund's movement. Thus we may be aware of all the changes on the capital structure. Moreover, we should realize the turnover rate of the particular stock. An abnormally high turnover could indicate the financial constitutions are leaving the market.

Furthermore, we can make our evaluation based on the company’s performance. The only way to provide a systematically comprehension of the company is through their accounting reports. In fact, there are some ratios require our concentration: the Earning to Price of shares (EP), the Net return on Shareholders Equity (ROE) and the profit margin. These figures indicate the company’s ability to generate profit in the future, and they affect the investor’s confidence on a large scale.

Revisiting the three major factors for new investors to consider: the fund's movement (Capital), the market confidence, plus the company performance. Let us use the abbreviation CCP for these terms, and hopefully this CCP method will assist us on the progress of learning the financial investment.