Many different factors affect changes in share prices. Below we will characterize the most important things that you should follow with the greatest commitment.
Profits and other fundamental factors pertaining to a given company
The company’s results and its development are the main factors affecting the company’s share price. Finally, by buying shares of a given company, you become one of its owners and from now on you will participate in its successes and failures. It is natural that when a company performs well, the number of investors wanting to buy its shares increases. This, in turn, increases demand and raises the company’s share price. In turn, if the company’s results are not satisfactory, fewer and fewer investors are willing to buy its shares, which is tantamount to a drop in demand and share prices.
The company’s results are evaluated based on the analysis of its fundamental indicators (ie taken from its financial reports – primarily the balance sheet and the profit and loss account). The most important indicator is the company’s profits, which is what the company earns after deducting all costs. Other indicators that you must observe are return on equity (ROE) as well as the price to the book value (P / BV). They give a general picture of the company’s financial condition.
Profit-making companies can either invest it in further development or pay dividends to shareholders. A dividend is a cash payment for a shareholder whose size depends on the number of shares held by him.
The dividend payment is of great importance to the investor as it is a permanent source of income from his investment. Thanks to this, if the company’s profits increase, it may increase the price of its shares by allocating a larger part of the profit to the dividend. Shares of companies increasing dividends generally gain on price, while those that reduce the amount of dividend paid – they lose their value. Currently, more and more enterprises are deciding to pay dividends, sharing profits with shareholders. Thus, investing in dividend companies is becoming an increasingly popular portfolio strategy in Poland, because in the long run it brings higher returns to the investor than in the case of other investment approaches. For this reason, it is worth knowing the dividend policies of companies, because knowing the assumptions of these policies, you can forecast the future dividend rate, which becomes the main criterion in the selection of companies for the dividend portfolio. It is worth remembering that the higher the company’s dividend rate, the higher the rate of return on investment, which further encourages investors to buy shares. As a result, additional demand for shares is generated, which increases the company’s price. In addition, it is worth noting that in the environment of low interest rates, the dividend policy is also gaining in importance because “free capital” is always looking for more profitable investments. As a result, the practice of investing in dividend companies is becoming more common and an attractive alternative to low-interest investments.
Macroeconomic data publications
Macroeconomic data is announced by national governments and other major institutions and concerns factors that affect the economy as a whole and not just one specific company. These include publications on the level of interest rates or the size of gross domestic product.
Most of the publications that will be important to you are usually known well in advance. For example, the dates of meetings of the Monetary Policy Council, on which decisions on the amount of interest rates are made, dates of announcement of the budget results of the economy. Thanks to this, you have enough time to analyze the market and take the right position.
A quick overview of the economic calendar gives you the opportunity to identify important economic data that may affect the behavior of the actions you are interested in. Data may concern, for example, the unemployment rate, the size of the money supply or the Gross Domestic Product (GDP).
Investment analysts, economists and other market participants are constantly analyzing upcoming macro data releases, trying to predict their results. While not all analysts agree on the amount of a given indicator, it is common practice to draw the average value from the forecasts of the largest financial institutions, simply called the average forecast.