The stock market can be a great generator of wealth and a valuable tool in creating the necessary nest eggs for retirement and higher education. Understanding the stock market requires the ability to make sense of the wide array of numbers that flow from various sources of market information.
Determine what the number refers to. A number without context is worthless. Determine if the number pertains to an individual stock, a market index or some other item.
Read individual stock numbers as dollars. Numbers regarding individual securities are generally denominated in dollar. Thus, a stock price of 42.65 means the price per share is $42.65. Likewise, 1/2 would be half of a dollar or fifty cents.
Read numbers regarding indexes or averages as non-dollar units. Instead, these numbers should be interpreted as percentages. For example, if an index rose 75 points from 1023, then interpret the 75 as 75/1023 or 7.33%. Thus, there was a 7.33% increase in the value of the index.
Read numbers regarding options as multiples of 100. Since one option contract is worth the right to buy or sell 100 shares of stock, the numbers attached to options are written as 1/100 of the true value. Thus, a contract quoted at 4 means $400.
Always pay attention to the symbols associated with any numbers. They can provide valuable clues.
- Always pay attention to the symbols associated with any numbers. They can provide valuable clues.