How to Invest in Common Stocks in the Stock Market | Kevin Charles Mapula
The Stock Market
Investing in the stock market is
a risky business. However, there are many areas in which one can invest in and
either reduce or increase one risk. Usually, the higher the risk, the higher
the reward. The areas of investments are options, mutual funds, common stocks,
preferred stocks, governments bonds, etc. Government bonds and mutual funds are
the list risky. However, the returns on these investment instruments are very
low. Returns usually range from about 3% to 5%. The area in which I am
specialized in is common stock and the focus of this article is about investing
in common stock. Investing in common stock has a higher risk than government
bonds and mutual funds. However, if you do your homework properly and
thoroughly you will reduce the risk significantly and the rewards are usually
great.
Getting Prepared to Invest in the Stock Market
Before you can invest in the
stock market, you will need to open an account with a reputable stock brokerage
company. It is preferable to use a bank that has a brokerage division. The
reason for this is for you to have easy access to your money. That means, you
can transfer money from your brokerage account to your bank account instantly.
Otherwise, money has to be mailed to you when you do a withdrawal from your brokerage
account.
Next, you need to sign up to have
online access to your account. After this is done, you will need to have real
time access to the stock market. Most reputable brokerage companies will
provide this service to you depends on your deposit. The more money you
deposit, the more services you will get for free. Note - you do not need the 15
minutes delay real time stock prices. This is no good to you. You need real
time stock prices. Once this is set-up, you are ready to rock and roll.
Common Stock Selection
The Next thing you need to do is
to find the stocks that you want to invest in. This part is time consuming.
What I did for finding my stocks is as follow: at the end of every business
day, I looked at the stock market of interest and look at all the best
performing stocks for the day. In doing so, you will get a stock code which is
necessary for buying, selling, and researching stocks, etc.
The next thing you want to do is
to research each stock that you are interested in. You want to look at
financial statements and balance sheet for 5 years. Financial statements will
tell you if the company is making money or losing money. Also, a financial
statement shows you a company sales trend and expense trend. Therefore, you can
determine if a company is growing or not. The balance sheet will tell you if
the company has money and assets or if it is in debt. If a company's
liabilities is 25% of all its asset, that is a financial sound company.
However, if a company's liabilities is 75% of its assets, that company is in
serious financial debt and will be a very risky investment. To be successful in
the stock market, you will need to be knowledgeable about financial statements
and balance sheets.
Next, you want to research what a
company do as a business. Also, you want to know who are the stock's holders of
a company, who is the CEO(chief executive officer), who is on the board of
directors, does the company pays dividend, etc. Also, you want to check all the
news headlines about a company for about 5 years. After all this is done and
you are satisfied with the company, you put this company in your portfolio. You
do the same procedure for each company that you are interested in. Note - you
have to diversify your portfolio. Invest in companies that are in different
kind of businesses. For example, invest in companies that are in various
business segments - mining, manufacturing, services, etc. Once you have a
number of companies in your portfolio, you are ready to do business.
Monitor Stock Price
The trick of making money in the
stock market is to buy low and sell high. Therefore, timing is very important
in the stock market. All stocks have a pattern. There are peaks and valleys in
every stock. Certain news, will drive stocks prices down or up. These are the
waves that you have to look for. Therefore, you buy on the low and sell on the
high. To monitor a stock price, you will have to create a stock chart. Your
brokerage company may provide this service. look for stock chart. You may also
find stocks charts on Yahoo Finance.com, StockCharts.com, and other similar
websites. Once you find the service, all you have to do is to enter the stock
code. Next, you will have to select a time frame. You can select the maximum
time frame and see what the stock have been doing for a number of years. Next
you can select 5 years and see what the stock have been doing for the last 5
years. You can play around with the stock chart to get a feel of the stock. At
the end, you want to figure out the stock low and high price. Being able to
analyze a stock chart is a very important aspect of investing in the stock
market. Acquiring this skill and becoming very good at it is very important for
making money in the stock market.
Buying and Selling Stocks
Once you have done all your research,
and you are satisfied that you are in a good position to buy, you go ahead and
buy.That means that you go online and put in a bid to buy a certain amount of
stocks at a certain price. Once your bid goes through, you are now a part owner
of a company. All the information about your purchase will be available to you
online. Note - the brokerage company will charge you a commission for buying
and selling stocks for you. Also, the key to making money in the stock market
is to buy stocks in large volume. You do not have to buy all the stocks on one
purchase. You can buy in segments. That means, if you want to buy 2000 shares,
you can purchase 500 shares on 4 different occasions - buying leverage.
Now you have bought some stocks,
you have to keep on monitoring the stock price. Sometimes, the stock price may
drop further from where you purchase. Do not panic, as long as you bought in
the low range, you will be good. It is very difficult to buy at the exact
lowest price and sell at the exact highest price because you will never know
for sure what that will be. Stocks have a tendency to hit new lows and new
highs. You will have to trust your instincts based on whatever is going on in
the news.
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