Stock Market Investing for Beginners

mmon Motivations

Motivations behind financial investing are nearly as numerous as investors themselves. Of course, your priorities may differ from your neighbor’s, but for the most part, motivations for investing tend to fall into three categories:

Investing to build wealth.
Investing to support a family.
Investing to prepare for retirement.
Investors focused on building wealth tend to concentrate more on the near future than do other investors. Wealth allows you to establish and maintain a comfortable lifestyle. For some, that comfort might mean a nice-sized house, a couple of reliable cars, and a trip to somewhere warm for a week every January. Many investors are happy with such a lifestyle, while others set loftier goals. By building wealth slowly over time—the safest and surest way to do it—you can improve your lifestyle along with your net worth.

When studies conclude that stocks with low P/Es tend to deliver higher returns than those with high P/Es, they generally combine data from thousands of stocks and holding periods

Stocks with low valuation ratios of all types tend to outperform

Don’t Kid Yourself

The first step is to avoid making a foolish—but frighteningly common—mistake.

share a common purpose: to provide for the future

everyone invests their time, effort, and attention in what they find important.

companies using P/OCF, make sure you collect similar numbers for the different companies. Your best option is to pull the data directly from the statement of cash flows—not from the text in a company’s earnings

Plenty of companies generate negative cash flows, rendering the ratio useless.
Many companies don’t report cash-flow data—at least not in a way that is accessible to beginning investors. In particular, banks and utilities tend to skimp on providing that kind of information.
Not all companies calculate cash flow the same way internally. While federal accounting rules provide guidelines, many companies present their own customized numbers in addition to those mandated by the

operating cash flow (P/OCF) ratio as the best of the four valuation ratios—and they may have a point