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Learn How To Make Money In Stocks

April 18, 2012 | Comments: 0 | Views: 162

If you've been considering buying stocks and wondering how to make money in stocks then you will probably already know the most basic principle of investing. Buy low and sell high! This is how the money is made from trading stocks when you are investing. And then there is Warren Buffet's #1 rule which is "never lose money".

Buying Yourself A Piece Of The Pie

When you decide to purchase a share or shares of stock in a particular company, you are actually buying yourself a piece of that company. You have then entitled yourself to pro-rated profits earned while holding the asset. Generally, there are two ways which is money is made on the stock market.

Unless you are into day trading or short-term trading, you will most likely be holding onto your stocks for long-term gains. Therefore, let's say a company with an affordable $10 stock price grows at a rate of 20% for a ten year period, which is possible. The stock that was purchased for just $10 per share would be worth a little more than $600 per share after a decade assuming the same price-to-earnings ratio is maintained by Wall Street. Depending on how many shares purchased, that could make a nice payday for the investor.

Earning Money With Stock Dividends

In addition to the money the investor would make over the long-term as described above, they would also receive dividends. Dividends are payments made by a company to its shareholders. When the investor receives their dividends check, the funds are then yours to do whatever they want. It may be re-investing back into the company by purchasing more shares or taking a nice vacation with the family.

Researching Possible Stock Picks

Now that the basics of how money is made using the stock market have been covered, we will delve into some things you should know before purchasing any stocks that seem enticing. First of all, you want to shop for companies that are undervalued. Next, look for stocks that have price earnings ratios lower than those of their peers.

Of course, watch the news, especially financial reports and specials on the stock market. There is a lot of good information to be had by paying close attention to the media. Wall Street has been known to overreact to bad news and drive a stock price down lower than it really should be. This presents a good buying opportunity for a stock investor. Next, check out the head hancho, find out who is running the business and where the top executives worked in the past.

Once you have done your initial research, there is still more to do if you want to ensure a good stock pick for your portfolio. An investor may want to look at the balance sheets for the companies interested in. Things that make a company a good prospect are positive cash flow, low debt and consistent above average earnings. Finally, know when to drop a loser. If the stock is consistently losing then it's probably not worth having in your portfolio.

Larry Haywood is a stock market enthusiast and web publisher covering a wide range of investing topics such as: Make Millions On Stock Market

Source: EzineArticles
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