Are you one of the winners of the InvestED 300th podcast episode giveaway? Listen to this podcast to find out!
Investing in stocks is one of the best things you can do to set yourself up financially, but you have to first understand the company valuation process in order to actually make money.
When a company decides to go public, an investment bank helps determine what the price of the company’s stock should be at their Initial Public Offering (IPO), when they become available to purchase on the stock exchange. They determine the initial price based on the value of the company and early interest from investors before the stock is available to the public.
After the company goes public, the stock price is based on supply and demand. When the demand for a stock goes up, its price goes up. The demand can increase if the company is doing extremely well and its value is increasing, or it can increase simply because of excitement from other investors.
It’s important to remember to not get the “value of the company” confused with the “price of the stock.” The market can be incredibly emotional and price a great company way under their true value and vice versa. Ultimately, the stock price is determined by greed when the stock price is going up and fear when the stock price is going down.
This is why it’s important to invest with certainty within your circle of competence. Love what you own, and put your money where your values are. Most of us have the intention to make the world a better place, but seem to forget that the businesses that they invest in have a direct impact on what is going to exist in the world in 10-20 years.
In today’s podcast, Phil and Danielle announce the winners of the InvestED 300th podcast episode giveaway and discuss rational investing in 2021.
Learn more about using your Circle of Competence to pick stocks with my 3 Circles Exercise Guide. Click here to get started: http://bit.ly/3pn4Bgj
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