The stock market can be an exciting yet intimidating place to invest. For the rookie investor, summoning the courage to dangle your hard-earned money on the open market may prove overwhelming. It seems like for every stock market success story, there is an equally large failure in which somebody “lost it all.” Maybe you are under the impression that you need to be a professional to make money in the markets. Actually, anybody can be successful in the stock market with the right approach. Lets first go over the basics and then get into some tips for successful investing on the stock market.
1) The Basics
You will need a stock broker to trade stock. InvestAssetWealth uses Questrade as a cheap, no-frills online broker. This is a good place for you to learn the ropes and get your feet wet. Once you have an account setup and have deposited a minimum of $1000, you are ready to begin trading.
Here are the basics of trading: For every buyer, there is a seller. A seller submits an order to sell at a specific price - this is called the “ask” price. A buyer submits an order to buy at a specific price - this is called the “bid” price.
When the ask price and bid price match, the stock changes hands. The agreed upon price is displayed as the “last” price paid for a particular stock; this is the stock price as valued on the open market. As buyers and sellers come together at different prices, a stock price will move up and down constantly during the trading day. These are the moving numbers that run across the screen during business news television broadcasts.
Some companies pay dividends as a way to distribute earnings back to the shareholders. Look for companies that pay dividends in the 5% to 10% range, and you can make a small income along side the hopeful capital appreciation.
2) Necessities
Read, listen, watch, and absorb. Devour the business section of your daily paper, and listen to the business news as much as possible. In Canada, the Business News Network is an invaluable resource for stock investors. The professionals they bring onto the program are worth their weight in gold (no pun intended); absorb what they have to say. A lot of information presented pertains to the Toronto Stock Exchange. After staying in constant touch with the business news for a month or so, you will begin to pickup on trends and patterns. Things that were once foreign to your brain will start to make sense. If you stay focused and committed, you will begin to use your new-found knowledge to form opinions on your own - and thats where the magic happens. At this point, you are ready to take some calculated risks on the open market.
3) Tips
Buy low and sell high; that is the name of the game. You don’t always have to buy at the bottom of the curve, and sell at the top. Many investors have gotten rich by taking profits without getting greedy. Remember, you only realize your profit when you sell. Just because your stock is now worth a tonne, it doesn’t mean its money in the bank. If you feel like the stock is near the end of its run, its better to get out then wait for the last penny of growth. Equally important is understanding that you only realize losses when you give up on a losing stock and sell. Markets are cyclical, and many times a stock price will bounce back a year down the road. Try to set aside “investment” money that you can afford to live without; that way you can keep a declining stock through hard times if you still believe the long term future is bright. That being said, sometimes it is good to set technical stopping points corresponding to a particular moving average. For example, if a stock drops below x amount of dollars, sell no matter what. Choosing a long term horizon is always a good strategy to negate the daily ups and downs in the market; anticipate a 3 to 5 year time horizon. Picking strong companies that have clean balance sheets and proven track records is usually a safe bet.
Hopefully this small tutorial will give inspiration and insight to beginners thinking about investing in the stock market. We will intentionally leave this blog post open-ended. Lets continue the discussion below in the comments section. I encourage stock market beginers and intermediates alike to ask questions and get involved in the discussion below. Professionals also please get in on the action and lend your expertise. I will certaintly do my best to provide advice where possible and answer any questions. Lets chat!
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