Before you buy a stock (and after you’ve invested!), you’ll want to know how it has performed. This is where a stock chart comes in handy.
A stock chart shows the price of a company’s shares over a set period of time, ranging from as little as one day to as long as multiple years. It typically includes several key pieces of information:
Some stock charts also tell you if and when a company paid out dividends and how much they paid.
Stock returns—or how much money an investment in stock made or lost over time—give you another glimpse into a stock’s performance.
There are two main types of stock returns:
Because total returns include more than just price changes, they are generally seen as giving investors a more complete picture of a stock’s performance.
If you’ve got a calculator, you can figure out a stock’s total return using this simple formula:
+ Value of investment at the end of the year
– Value of investment at the beginning of the year
Dollar value of your total return
(Dollar value of your total return) / (Value of at the beginning of the year) = % Total return
Looking at a stock’s relative performance is another way to see how well it’s doing. In relative performance, you either compare one stock against other similar stocks (comparing American Airlines stock against Delta and United, for example) or against a specific index (such as the S&P 500, Dow Jones Industrial Average, or Nasdaq Composite).
Considering a stock’s relative performance can help you understand if it’s doing well (or poorly) because all stocks are doing well or if its performance is driven by developments at that specific company.
It’s important to understand that a stock’s past performance is not a crystal ball: It does not tell you how a stock will perform in the future. But it can help you spot patterns in a stock’s past returns that can help you make informed decisions about if and when to invest in that stock (or when to sell, if you already own the stock).
Now that you know the ropes, how can you get started actually investing in stocks? Here are the basic steps: