Step two in the investment decision process is where you determine what price you are willing to pay for shares. This is a trickier step because it generally entails making assumptions about future growth and is likely the step that has the most variance among investors.
Some use a ratio of the current price to the 52 low and 52 week high. Others use comparisons to traditional valuation multiples such as price to earnings, price to cash flow, price to book value, dividend yield or just about any other per share financial metric. Still others will use some kind I estimation of future dividends or cash flows of the company and discount them back to the present. Personally, I use a combination of many of these but whatever valuation method you use the end goal is a price target.
Once you've identified a price target you can now move on to the actual purchase of shares, of course there's still plenty of choices for that as well. You can set up a limit order to purchase the amount of shares of the company at a specific price and wait for the price to reach your price target. There's also the options market which is a valuable and often overlooked opportunity to generate extra income.
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