Introduction to investments

Every investor wants to invest money and earn a profit from it. Let’s explore how to calculate stock returns, what methods are available for this, and what beginners might need to know.

The dream of any investor is to accurately determine the current and future value of a company issuing purchased securities. This would simplify tasks like calculating returns, assessing risks, and most importantly, creating an investment portfolio optimal for the stated goals. Unfortunately, precise calculations are practically impossible at present. The problem is that a company’s value reflects not only tangible assets (land, buildings, equipment, working capital, etc.) but also intangible, including non-identifiable assets. One of the latter is goodwill.

Traders and investors in the stock market derive a significant portion of their profits from the reaction of stock prices to news related to the issuer. Key events in this context include stock offerings — initial (IPO), secondary (SPO), or follow-on public offerings (FPO). Each of these has its own characteristics for both the company and market participants.

Stock market trading always involves certain risks. Investors who follow a long-term investment strategy rarely pay attention to current price fluctuations. They focus on the inevitable growth of the stock market and are confident in making a profit at the end of the planned investment cycle. For those engaging in speculative operations, short-term gains, and working on declining asset prices, such fluctuations can bring many troubles. Both losses and missed profits are equally critical for them. Stop orders help combat these issues: stop-loss in the first case and take-profit in the second.

Investors aim to use trading strategies that maximize profits by exploiting market inefficiencies. Today, it is easy to find numerous trading systems and strategies whose authors claim to have found a universal solution with returns higher than those of broad market sectors. The credibility of most of these claims remains questionable. However, there are some strategies among these developments that can actually yield high profits. One such strategy is the sector rotation strategy.