If you've read Alex Long's last two articles in this series (Part 1 and Part 2), you know by now that making money rarely is risk free, and generally plays out to be a high risk-high gain/loss scenario. The best way to make money is to have money, so for this article, lets assume a financial backing of about $10,000 dollars. For the sake of simplicity, I'm going to be working with online trading systems in this article. Some stocks are traded on exchanges, where buyers meet sellers and decide on prices. Other exchanges are physical, carried out on a trading floor. I'm sure you've seen pictures (like from the movie Wall Street) where people are yelling and waving their arms, note-sized papers flying everywhere. Online stock trading is the best step for beginners, and is much simpler and easier to manage. Some people view the stock market as a game, but I assure you, the market is not always "fun". If you want to be successful, you need to view it as a business and take investments seriously.
The Stock Market: Share Portion
The stock market is a huge, vast topic that would take thousands of words to fully explain. I'm simply elaborating on the basics in this tutorial, but I have included links at the bottom of the page for further reading.
There are two market types; the primary market and the secondary market. When you hear people talking about trading stocks and buying and selling shares, they are referring to the secondary market, which is most commonly generalized as the stock market itself. Primary markets are more physical exchanges, like the New York Stock Exchange, where investors and sellers are united physically, and matched by an individual called a specialist.
When a company goes public, they give investors and stock traders the opportunity to invest. The company will decide on what portion of shares to distribute, and what the cost of those shares will be. Say, for example, you owned a company worth a million dollars, and decided to go public at ten dollar a share. Your company would now be composed of a million shares, available to the public. Of course, as owner of the company, you would keep a certain amount of those shares, say 100,000. Your company is now worth 9 million dollars, but you are no longer owner of the company outright. You are working for the shareholders, who own 90 percent of the company.
How Can I Make Money?
Dividends:
If you're primarily looking for a low involvement, long term investment, dividends are your best bet. I'll be using this stock as an example. TDG is an oil drilling company that distributes a five cent dividend generally every three months. This means, for every share you own, you make five cents. Say you purchased 1500 shares of TDG (costing about $6.64 a share, your investment would be around $10,000), you would make 75 dollars every three months based on dividends. Though this doesn't seem like much, it does add up. There are other stocks that will pay higher dividends as well, such as STX (Seagate Technologies) and INTC (Intel Corp).
Trading:
Another option is actually trading your stocks. Though it takes more involvement, you can make significant profit off minimal investment. Say you purchased 10,000 shares of this stock (currently at about $1 a share, that's an investment of $10,000 dollars). If the stock goes up five percent, you make 500 dollars. Stocks like these go up and down five percent regularly, so there is plenty of opportunity.
What Are The Risks?
There is substantial risk when investing in the stock market. Dividends are subject to change with the fluctuations of the stock. Never ever invest more than you are willing to lose, and ensure that you don't focus your energy and investments on one stock, but a rainbow of variations. That way, if you lose money on one, you can make money from the other. Watch for "bottom" in a stock, the point where it plateaus slightly and steadies. That is generally a good time to invest, but again, never put in more than you are willing to lose. Stock trading is a great hobby, but should never be considered gambling, a game, or "just for fun". If you're looking for steady, reliable investments, the stock market is not something you should consider. However, with greater risk comes the potential of greater gain.
Helpful Links
Information on companies and stocks
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7 Comments
Awesome! I guess if you can play it well enough and never lose money, then there isn't any harm in doing it. I might man-up and invest in some stocks soon x]].
go for it!! there are lots of stocks you can invest like, $100 dollars in, and still make money from. the only issue is, most stock programs charge about ten dollars commission each way-that is, ten dollars lost buying, and ten dollars lost selling.
True about the (at least) 20 bucks total in buying and selling online. I've played around a bit in the past and have always made (at least) my money back in total... all except once. So the fees aren't bad if you sell at the right time. That one time I didn't make my money back, I didn't follow my gut, but instead looked at a press release from the company that I thought would hurt it. I sold it at like half its value, then the next week, they reneged and showed some promise. The stock then doubled (this was after five years of bad performing stock). It was irritating, but that's how it goes sometimes. Great article.
thanks! :) and yeah, commission is annoying
Another great article. Good work, sir.
thank you! looking forward to reading yours :)
As you've pointed out, high rewards generally require high risk. But it seems to be unknowable what moves the market. Fundamental analysis is great if you're actually buying the company involved, but it tells you nothing about what people are willing to pay for the stock. The fundamentals could be great, but the stock could still be a dog. Technical analysis, on the other hand, tells you nothing of the actual value of the stock, but claims to reflect/predict public willingness to buy/sell. Notice I said "claims". On top of all that, low-priced stocks (so-called "penny stocks") are subject to all sorts of nasty scams, such as "pumping and dumping". My feeling is that the stock market, for most people, is a place to maintain wealth, but not necessarily to make it in the first place (Warren Buffett is the exception). But if you must invest . . . I've got this really neat bridge leading out of Manhattan, and I can let you have it really cheap, just 'cause you're my pal.....
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