How to Understand Stock Statistics & Investing

by Jackie Lohrey

Investing your hard-earned money in the stock market can be significantly less risky if you pay attention to statistics. Although developing a full understanding of the statistics that are part of market indices and the individual stocks within each index takes time and a fair amount of practice, the payoff can be significant. Understanding statistics and how they relate to investing can not only help you select stocks with a greater degree of certainty that they will increase in value over time, but also help you monitor performance once those you select become part of your investment portfolio.

Access an online market index such as the Dow Jones Industrial Average or S&P 500 and familiarize yourself with its layout. Although individual stocks within each market index will differ, the four-section layout -- consisting of a stock chart, market snapshot, moving averages and components section -- as well as the type of statistical information in each section is the same.

Click on the bar chart in the upper left corner of the page to open a large and more detailed version. This chart, called an Open High Low Close, or OHLC, chart opens to a default view that displays real-time market statistics -- including current price, change and change percent -- along the top of the chart and price trend statistics for a specific time frame within the chart body. Increase or decrease the level of detail by changing the chart view to display a one-day, three-day, one-week, or a one-, five- or 25-year time. Place your cursor at any point on the line to view OHLC statistics for a specific day or time.

Review snapshot information that, while not statistical information in the true sense of the word, is helpful in evaluating general market direction.

Look at the five stock statistics in the Percentage of Stocks Above Moving Average section. Moving average is a calculation that sums the stock prices of all stocks in the market at the end of five, 10, 20, 50, 100, and 200 days and divides the sum by the total number of stocks. The use of averages creates a smooth tracking curve that provides a backdrop for plotting daily price fluctuations for the same period. The higher the percentage of stocks above the moving average the greater the upward momentum. Taken as a whole, percentage statistics show whether the market has upward or downward momentum and are one indication of whether -- according to your investment goals -- you should be looking to buy, sell or hold stocks within that market.

Review performance information for individual stocks in the Components section. Click on the name of any individual stock to view performance statistics details such as earnings per share or EPS, price/earnings or P/E ratio, dividend yield or div & yield, and market Cap. EPS statistics -- reflected in the calculation “Net income -- Dividends on Preferred Stock / Average Outstanding Shares” -- help you assess overall company profitability. P/E -- reflected in the calculation “Market value per share” / Earnings per share” -- can help you assess overall company growth. Div & yield -- reflected in the calculation “dividend yield = annual dividend per share / stock price per share” -- reveals how much a company pays out in dividends each year relative to its share price. Market cap -- reflected in the calculation “number of shares outstanding x price per share” -- reveals the total value of all of the tradeable shares of a company.

Tip

  • Look at stock statistics as a whole rather than individually when making “buy, sell or hold” decisions. In addition, because stock investments always carry a degree of risk, go behind the scenes to get information that can help you better understand the “why” of stock statistics. Read the stock prospectus the U.S. Securities and Exchange Commission requires every stock issuer to provide, paying close attention to information in the risk factor section, use of proceeds section and the management discussion and analysis of financial condition and results of operations section. Finally, read corporate financial statements to get a picture of the financial status and overall health of the company whose stock you are considering.

Photo Credits

  • Goodshoot/Goodshoot/Getty Images