How To Invest In The Stock Market For True Beginners

The stock market is one of the most popular ways to invest money and is something that people have been doing for centuries. Unlike other types of investments, such as saving accounts, bonds or a certificate of deposit (CD), stock market investing has an aura of excitement that surrounds it due to its perceived high risk and volatile nature.

Of course, movies such as Wall Street, Rogue Trader and Boiler Room, have all played their part in shaping how the public views the stock market, but the fact remains, the stock market really is a very exciting place to have your money and so it is not surprising that both young and old financial investors turn to it in the hope of gaining wealth and riches.

How much money can you make in the stock market? Well, nobody can tell you that for certain, but billionaire investors such as Warren Buffett provide a good example of what’s possible with the right knowledge, skill and patience.

But before you get overly excited, it is important to remember that for every stock market millionaire or billionaire, there are many more people who never made it, lost everything and went broke. So be warned, it is a very risky place to be in if you don’t know what you are doing!

In this article, we are going to look at stock market investing from the perspective of an absolute beginner or first time investor. The purpose of this article therefore, is not to help you make investment decisions or to tell you where you should put your money, but rather, to give you a general overview of some of the most important things which you need to know about the stock market, how it works and how people make money from it.

So lets start right at the very beginning by looking at how to recognize the value of a stock. If you are interested in learning how the stock market works, then please see the video above.

Recognizing Value In The Stock Market

When you go into a shop, there are set prices for different items of food. You then choose which of those items you want, and if you are willing to pay the asking price, you purchase those items.

The stock market is just like a shop. The items you see in a shop represent the companies that are available for you to choose from, and the prices that are displayed, represent the value of each company’s stock.

Some items are similar, but vary in price. One may be cheaper, while the other is more expensive. The same happens in the stock market. The price of some company’s shares are cheaper than the shares of other companies. Which stock you choose to buy can be dependent on many factors, although as an investor, you are generally looking to purchase shares at the lowest price possible.

However, with that said, there is no point in purchasing something just because it is cheap. For example, you wouldn’t buy a moldy loaf of bread just because it was much cheaper than a fresh loaf would you? So in addition to price, quality also plays a significant role in stock selection.

Quality

In the stock market, some companies are of high quality whilst others are of low quality. Low quality companies are usually poorly managed and have limited future potential in terms of expansion and revenue growth. High quality companies are well-managed and will probably expand in the future.

Generally speaking, low quality companies have a low stock value and high quality companies have a high stock value. But, it is possible for a high quality company to have a low stock value and a low quality company to have a high stock value.

So whilst you do want to look for the cheapest stocks possible, you also want to make sure that you are buying quality. Or at least, something which has the potential to become a quality company sometime in the future. You can do all this research by yourself, with the help of a financial advisor or with a stockbroker.

Market Capitalization

In the stock market, you can determine the value of a company (the value of its stock) in many different ways. One of the simplest ways to measure the value of a company’s stock is to look at the company’s market value. This is also known as market capitalization or market cap.

Market capitalization is calculated by multiplying all the outstanding shares of a stock by the price of a single share. For example, if a company has 2 million shares outstanding at a share price of $20, the market cap would be $20 million.

Types Of Market Caps

There are different types of market caps depending on the value of a company. These can be classified as either micro, small, large or ultra.

Micro Cap (below $250 million)

Micro caps include anything under $250 million. These types of stocks are considered to be very risky.

Small Cap ($250 million – $1 billion)

Stocks in this category have the potential for future growth and are considered to be better investment options than micro caps.

Large Cap ($5 billion to $25 billion)

Stocks in this category are usually bought up by investors who are looking for a safe long-term gradual increase on their original investment. These types of stocks are often called “blue chips”.

Ultra Cap (Over $25 billion)

These stocks represent the biggest companies in the stock market, such as General Electric or Exxon Mobile.

In general, the larger the market cap the safer an investment is considered to be. This is because a larger market cap usually signals a large and well established company, whereas a smaller market size usually signals a newer company that has yet to establish and prove itself.

Investors however, sometimes choose smaller cap companies to invest in because stocks can be purchased at lower cost. If such a company becomes very successful and experiences rapid growth, that investor will then stand to make a lot of money.

But, they could also lose a lot of money if that company does not perform well, so the investor must make a choice between the amount of reward that they want and the amount of risk that they are willing to accept.

Stock Market Indexes

An index is a measurement which represents the value of a batch of stocks. Investors use this index to see how the stock market is doing overall or how parts of it are doing.

The oldest stock market index is the Dow Jones Industrial Average which covers the stocks from 30 different companies. Currently, these companies include:

  • 3M
  • Alcoa
  • American Express
  • AT&T
  • Bank of America
  • Boeing
  • Caterpillar
  • Chevron Corporation
  • Cisco Systems
  • Coca-Cola
  • DuPont
  • ExxonMobil
  • General Electric
  • Hewlett-Packard
  • The Home Depot
  • Intel
  • IBM
  • Johnson & Johnson
  • JPMorgan Chase
  • Kraft Foods
  • McDonald’s
  • Merck
  • Microsoft
  • Pfizer
  • Procter & Gamble
  • Travelers
  • United Technologies Corporation
  • Verizon Communications
  • Wal-Mart
  • Walt Disney

Stock market indexes are calculated on the concept of weighting which describes the relative importance of the items when they are computed within the index.

There are several different kinds of indexes, some of which include:

Price Weighted Index

This type of index tracks changes based on the change in an individual stock’s price per share.

For example, suppose you owned two stocks. Stock A is worth $30 and stock B is worth $60. In a price weighted index, a greater proportion of the index would be allocated to stock B. The index number would reflect this as stock B being 67% of the index and stock A being 33% of the index.

Market Value Weighted Index

A market value weighted index tracks the proportion of a stock based on its market capitalization.

For example, if you have 10 million shares of a $30 stock (stock A) and 1 million shares of a $50 stock (stock B), the market cap of stock A will be $300 million and the market cap of Stock B will be $50 million. In a market value weighted index, stock A will represent 83% of the index value and stock B will represent 17% of the index value.

Broad Based Index

A broad based index is used by investors to compare how well their investments are doing by looking at a snapshot of the entire market.

Composite Index

A composite index is an index which is a combination of several indexes. For example, the New York Stock Exchange composite tracks all the stocks on the New York Stock Exchange (NYSE).

Other Stock Market Indexes

Although most people tend to think of the Dow Jones, NASDAQ and Standard & Poor’s 500 (S&P 500) when you mention stock market indexes, you are likely to find it useful following other indexes in addition to these.

This is because different indexes can cover different aspects of the market such as small-cap and mid-cap stocks, and so when you invest in a particular industry, you will need to look at the indexes which cover it.

For example, if you are investing in Internet stock, you can look at the Internet Stock Index to compare your stock against other stocks to see how it is doing when it is measured against the index.

There are lots of different types of stock market indexes such as those covering transportation, retailers, computer companies and real estate firms to name a few. What you chose to look at should be related to your field of interest and the type of investment you have chosen to make.

Dividend/Income Stocks

When investing in the stock market the basic rule for making your money grow is to look for investments that will appreciate (grow) in value.

For example, if you bought a share for $5 and now its value is $45, your original investment has gone up by $40. This increase is called appreciation, and your aim should be to make your investments grow as much as possible with the least amount of risk.

Stock market appreciation, also known as capital gain, is the main reason why people choose to invest in the stock market. Very few investment vehicles offer you the potential for such great returns as can be realized with stock market investments, which means that providing you know what you are doing, the stock market can be an excellent way to grow your money or even secure a second source of income.

Investing To Earn Income

Most experienced investors, as we will discuss shortly, tend to avoid short-term investment options that promise large returns but at a high risk. Rather, they opt for long-term investments that will provide them with a slower rate of return but a greatly reduced risk.

Such investors look at the long-term trends of their stocks, rather than the short-term peaks. As a result, they look for investments that will perform consistently well over time.

Some of these stocks may be purchased with the sole purpose of creating a steady source of income. Such stocks are called income stocks or dividend stocks and pay out dividends (i.e. a portion of a company’s earnings), usually on a quarterly basis, to its shareholders.

What Is The Difference Between Dividends & Interest?

Interest is something that most people are familiar with, because if you have a bank account, then you probably get a certain rate of interest just for keeping your money in it. You get paid interest because when you put your money in a bank you are essentially loaning your money to that bank. This makes you a creditor because eventually the bank must pay you back your money with interest.

Dividends on the other hand, are something different. Dividends are paid to shareholders, and if you own stock, you become a shareholder in the company in which you have bought that stock.

When you buy stock, you are therefore buying a piece of a company. The better that company performs, the greater its value becomes and the greater your stock value becomes as a result of that company’s success. If you have a dividend paying stock, you will receive income as a result of this success.

Dividend paying stocks have the potential to increase in value over time and they may, although not always, offer you a higher rate of return on your investment than you would get from keeping your money in a bank account or by buying bonds.

However, dividend paying stocks generally do not have the same growth potential as growth stocks (i.e. stocks that grow above the average rate), but can be useful if you are looking to create an additional steady stream of income for yourself such as for when you retire.

Short & Long Term Investing

When investing in the stock market, you can invest for different periods of time. Some people for example, choose to make a short-term investment so that they can later have money to buy a new house or new car. Other people choose to make a longer term investment and will not draw upon it until their children go to school or they retire.

Short and long-term investments both have their advantages and disadvantages, some of which we shall look at now.

Short Term Investments

A short-term investment is one that lasts under five years. However, it is important to note that stocks are not suited to a one or two-year investment as such investments are usually better made in a savings account or money market fund instead.

Short term investments are the riskiest type of investment that you can make. The reason for this is due to the fact that the stock market can rise and fall unexpectedly, so whilst your stocks may have a high value one day, they could crash the next.

If you are a short-term investor, you are therefore at greatest risk of being affected by such stock fluctuations. Of course, the flip side to this is that you could make a lot of money providing you sell near or at the peak of a stocks value.

But this tends to be relatively uncommon and so most short-term investors who don’t know what they are doing and/or get greedy, usually end up losing most of their money.

Risk

One of the most common reasons that people give for making short-term investments, is that by investing in the stock market, they will get a much better rate of return on their investment than had they kept their money in a bank where it would earn a low rate of interest.

Whilst this certainly can be true if you invest at the right time, the unpredictability of the stock market means that your investment is also exposed to greater risk.

For example, in 1999 during the dot-com bubble, big company stocks grew at an average of 25% and small company stocks went up a phenomenal 50-70% on average. Compared to a standard bank savings account, which at the time offered a 1.5-7% return on investment, the stock market seemed like an easy money-maker.

Unfortunately, the following year saw the stock market take a dramatic tumble as the dot-com bubble burst which resulted in many short-term investors losing a lot of money. Those who had chosen to put their money in a bank account however, continued to watch it grow.

The following is a news clip about the dot-com bubble from 1999.

So when it comes to short-term investments, the bottom line is this. There is the potential for big returns on your money, but also the potential for big losses. It is up to you to decide whether or not you want to take such a gamble, and if you do, you must be prepared to accept the potential of loss in addition to the potential of gain.

Long Term Investments

If you are serious about investing your money in the stock market, then you need to think about investing for the long-term. This involves investments that will remain active for at least five years, although ideally ten or twenty years is preferred.

Why would you want to make a long-term investment? Well, as discussed previously, the stock market can be an extremely volatile place to keep your money which makes short-term investments far too risky of an option for most people.

When you make a long-term investment however, you essentially become immune to the fluctuations in the market, because even if your investment were to go down this year, there is a good chance that it will rise again in the years to come.

In fact, if you look at the growth of the stock market as a whole over the past few decades, stocks have beaten any other form of investment per ten-year period. This is not to say that long-term stock investing is a fool-proof way to get rich though, as you still need to do your homework so that you can research and invest in the best companies which have good long-term prospects.

So there are still risks associated with long-term stock market investing, but the risks are generally much lower than with short-term investments. This is why most investors, especially novice investors, are recommended to view the stock market as a long-term investment vehicle rather than as something which can bring them a quick and easy short-term gain.

How The Economy Affects The Stock Market

The stock market and the economy are closely related. Therefore, if you want to become a stock investor, you need to have at least a basic understanding of economics as this will be a critical factor to your success or failure.

An understanding of basic economic concepts will allow you to sort out the information you hear in the news so that you can decide what is relevant, and what is not relevant, to the investments you currently own or are planning to make.

Some of the things that you should be aware of are discussed below.

Supply & Demand

The laws of supply and demand are two of the most important economic concepts that you will come across. Supply describes what is available and demand describes what people are willing to pay for something.

The cheaper a stock becomes the more people will want to buy it. As demand increases, this usually has the effect of pushing the price of that stock up.

The more plentiful a stock is the less people will want to buy it. As supply increases, this usually has the effect of lowering the price of a stock.

This means that the cheapest stocks are likely to be those for which there is little demand and plentiful supply. The most expensive stocks are likely to be those for which there is the greatest demand and are in limited supply.

Cause & Effect

The law of cause and effect states that for every effect there is a cause. In terms of stock market investing, this law means looking for financial news which will affect the health of a company and its stock value.

For example, if you hear that a particular industry is doing poorly, then you many choose to buy stocks in that industry because you think that the value of those stocks may increase again in the future. Or, you may choose not to buy stocks in that industry.

Some of the signs which may indicate that a company’s stock value is going to increase include:

1) Positive News About A Company

If you hear in the news that a company is experiencing increased sales, or that a new product they have released has become very successful, then that company’s stock value is likely to increase.

2) Positive News About An Industry

If you hear news about a particular industry doing well, or one that is expected to do well in the future, then companies in that industry are likely to see an increase in the value of their stocks.

3) Positive News About A Company’s Customers

Since companies often buy and sell from each other, hearing positive news about company A which does lots of business with company B, means that you are likely to see an increase in stock value for one or both of those companies.

4) Negative News About A Company’s Competitors

If a particular company is experiencing a decrease in sales, or are in any other sort of financial trouble, then their customers may look for alternative companies to buy from thereby raising the stock value of those companies.

Government Actions

One of the most powerful influences on the stock market, are the actions of governments. This may take the form of changes in taxes, laws or regulations. Although it is important to note that other factors, such as the prospect of war or peace, can also affect the stock market.

Put quite simply, a government can directly or indirectly cause a company to go bankrupt, disrupt entire industries or even cause a depression. Of course, the opposite can also be true.

For example, if a government passes a tax credit so that people use more environmentally friendly technology, then the companies in that industry are likely to experience growth and an increase in the value of their stocks.

The National Debt

Paying attention to the health of the economy is extremely important when it comes to stock market investing. In the 1990s for example, many investors in the United States lost a lot of money in their investments largely as a result of a rapidly expanding national debt and money supply.

As the money supply increased, people began to invest in the stock market. This hyper-stimulated the stock market and caused stocks to rise 25% per annum for five straight years. Since many people wanted to benefit from this high rate of return, they emptied their savings into the stock market, borrowed money on credit and borrowed against their home.

However, eventually all this spending started to slow down, because consumers and businesses were getting themselves too much into debt. This slowdown caused the sales of goods and services to slow down, which then affected the companies who sold those goods and services.

To make matters worse, many of these companies were already heavily in debt, and so to cut costs, they started to lay off their employees. The effect of this was that consumer spending dropped down even further because people no longer had a job or were unsure about their financial security.

Since most people had little or no money saved up and were in debt, they had no choice but to sell their stocks to pay their bills. As we know from the law of supply and demand, when supply increases price tends to decrease, so with lots of people trying to sell their stocks within a short space of time the value of those stocks came crashing down and people ended up losing money.

This is why studying economics is so important in understanding the stock market. Remember, it is very easy to overlook the fundamentals when the stock market is doing well, but as you have just seen, if you ignore the fundamentals completely then eventually you will end up paying a very high price for your ignorance.

How To Research The Stock Market

Before you decide to invest in the stock market, you need to do adequate research beforehand to ensure that you buy or sell the right stocks at the right time. Below we look at some of the ways in which you can do this.

Financial News

Keeping up to date with financial news is one of the most important things that you can do when investing in the stock market. If done correctly, stock market research will help you decide where you should invest your money and where you should not invest it.

There are lots of sources available to collect financial information, although some good places to start are newspapers, magazines and websites which cover the economy and financial news. You should aim to read as much information as you can that is relevant to your field of interest.

However, be aware that because there is so much information out there, you will never be able to read everything. So choose a few reliable sources and then use them to help you make investment decisions.

A few good sources to start with which are of relevance to stock investors are The Wall Street Journal and Investor’s Business Daily. These publications report news and stock data as of the prior trading date which means that you will be getting recent information to work with.

Online, some good sites to visit for stock investors are MarketWatch and Bloomberg. The advantage of using these sites for making investment decisions is that they can give you financial information very quickly (usually within 15-20 minutes after an event occurs).

Company Activity & Stock Value

When investing your money in a company, it pays, literally, to know what is going on with that company.

You should therefore make it your aim to learn as much as you can about the company who you are planning on buying stocks with. You should also aim to stay updated with recent developments that may affect that company’s current and future stock value.

Some of the things you should be looking for include:

1) Net Income

Is the company making more income than it did last year? You should invest in companies that are growing or show potential for growth in the future.

2) Sales

Is the company you want to invest in experiencing increasing sales? This is important because you will not make money investing in a company that isn’t making money itself.

3) Press Releases

Look for companies that issue press releases on new products, services, inventions and business deals. All of these can indicate that the company is strong and doing well financially.

Industry Health

The health of an industry largely determines how well your stocks are going to do. You should therefore aim to invest in industries which are experiencing positive growth and are predicted to grow in the future.

If an industry is doing well and you have bought stocks with a company in that industry, then the value of your stocks is likely to increase and you will make money. Generally speaking, you should avoid buying stocks in declining industries. It is possible to be successful in such industries, but you are more likely to lose money rather than make money.

To find out what industries you should invest in, look at what is being reported in the news, newspapers and financial publications.

The Economy

When investing in the stock market, you need to have one eye on how the stock market is doing and the other eye on how the economy is doing. In general, when the economy is doing well the value of your stocks will increase. When the economy is doing poorly, the value of your stocks will decrease.

However, it is still possible to make money in the stock market when the economy is down, just as it is possible to lose money in the stock market when the economy is doing well.

Some of the basic things which you should keep in mind in regards to the economy include:

Gross Domestic Product

Gross domestic product (GDP) describes the value of output (goods and services) for a particular country. If GDP rises 3% or more per year, the economy is doing well. If GDP rises less than 3%, the economy is in decline and headed for a recession.

The Index Of Leading Economic Indicators

The Index Of Leading Economic Indicators (LEI) shows a set of economic statistics covering the activity that precedes what’s happening in the economy.

Stock investors use such information to help them understand what is happening in the stock market and the things that may affect the stocks which they have bought.

Government

Government actions have a major influence on how the stock market is doing.

For example, if a government wants to encourage the growth of certain industries (such as those related to the environment), it can pass tax credit laws which allow companies within that industry to grow at a faster rate.

Therefore, when you hear about new laws or regulations the government is introducing, or plans to introduce, think about the industries which will be affected as this will help you to decide which stocks you should buy.

Consumer Trends & Company Value

Trends in society, culture and entertainment all affect the value of your investments.

For example, if a certain type of technology is becoming increasingly popular, then investing in the companies which produce such products means that you are likely to see an increase in your stock value.

Watch out for emerging trends that you can see now and also for those which you think will gain popularity in the future. The better you can do this, the better you will do as a stock market investor.

Your Financial Investment Goals

Investing in the stock market is not as simple as just picking a bunch of stocks which you think will give you a good return on your investment. This is because the stocks you purchase need to be aligned with your investment goals and the timeframe of that investment, as otherwise, you could end up with entirely the wrong stocks for your current and future financial needs.

For example, when buying stocks it is helpful to first determine when you hope to reach your financial goal. Are you looking for a short-term investment that will allow you to retire in 10 years or sooner?

Are you investing in the stock market because you want to pay for your child’s education when they grow older and so are looking for a longer 15-20 year investment? Or perhaps you are looking to invest in the stock market so that you will have money when you retire?

All of these factors will determine how long you invest in the stock market and the type of returns that you hope to get out of your investments. These in turn will influence the type of investments you make, which then determines what sort of an investor you will be.

Below you will find a brief description of each of these different types of stock market investors.

Conservative Investor

For long-term investments, the conservative investor tends to invest in large and mid cap stocks since they worry about the risk involved. For shorter term investments, the conservative investor will invest in large cap stocks, preferably with dividends.

Aggressive Investor

For long-term investments, the aggressive investor tends to be quite bold with their investment choices and so they tend to invest in small and mid cap stocks.

They have a high tolerance to risk and this is usually because they have money in reserve to absorb any losses they suffer. For shorter term investments, the aggressive investor will invest in small cap and mid cap stocks.

Risk Vs. Reward

The descriptions given above are general guidelines, and it is important to remember that all stock market investors invest differently depending on their own unique situation and their financial goals.

However, it is true that most people who opt for safer longer term investments tend to go for large and mid cap stocks, whilst riskier short-term investments tend to be carried out with small cap stocks.

The reason for this is that investing in a large company is usually less risky than investing with a small company. But whilst your investment will be relatively safe, the return you get on your investment will take longer to accumulate.

Small companies (small cap stocks) are riskier because small companies can go out of business much more easily than a large company can. But because of their potential for rapid growth, they offer an attractive option for people who are looking to make money from the stock market sooner rather than later.

Brokerage Accounts

In order to start investing in the stock market, you need a way to pay for the stocks that you buy. This is usually done through a brokerage firm which can offer you different types of brokerage accounts depending on your creditworthiness.

There are three types of brokerage accounts that you can open. The first is a cash account, the second is a margin account and the third is an option account. To open a brokerage account, you will need to fill out an application, and if you are approved, deposit a set amount of money to open the account with.

Cash Brokerage Accounts

A cash brokerage account is usually given to people who have a low credit rating, or are at risk of not being able to pay back borrowed money, and requires you to deposit a sum of money into your account before you are able to begin trading.

How much money you have to deposit really depends on what brokerage firm you go to. Some stock brokers for example, require you to deposit $15,000 before you can begin to trade, while others will allow you to start with as little as $500.

Sometimes, stock brokers may allow you to open an account without depositing any money, but this is usually done as a promotion, so it doesn’t occur very often.

Paying For Stocks

If you are trading with a cash account, the money has to be deposited before the closing date for any trade that you make. The closing is usually set at three days after you have made the trade.

For example, if you buy some stocks on Monday, then you would be required to pay for the stocks by Thursday. If you don’t pay, your purchase doesn’t go through.

Earning Interest On Your Cash

If you end up keeping a lot of cash in a brokerage account, ask whether your broker will pay you interest on the uninvested cash because most quality brokers will provide a service to do this.

Margin Brokerage Account

A margin account is offered to people who have a good credit rating, and are considered to be low risk when it comes to loaning them money.

A margin account can be advantageous for a stock market investor, because it allows you to borrow money against your securities in your account so that you can buy more stocks. So essentially, a margin account allows you to borrow money so that you can make more money.

Approval

In addition to having a good credit rating, you need to be approved by a broker in order to qualify for a margin account. Once you are approved, your extra line of credit should make it much easier for you to make more money and make it quicker than you could before.

However, there is a limit to how much money you can borrow from your account, and the margin limit is usually set at around 50%. So if you plan to buy $20,000 worth of stock, then you would be required to have at least $10,000 in your brokerage account.

It is important to remember that you will be charged interest on the money you borrow, and although the rate you are charged will vary from broker to broker, it is usually several points higher than the broker’s own borrowing rate.

Why Use It?

You don’t have to have a margin account to buy stocks. You could just pay in cash. Most people however, don’t have so much cash to hand, and so it works out far easier borrowing the money.

A margin account is therefore just like taking out a mortgage on a house. It allows you to buy something that is more expensive than you can afford, as long as you are willing to pay the interest on borrowing that money.

Option Brokerage Account

An option account is also called a Type 3 account, and offers you all the benefits of cash and margin accounts. The difference in having an option account, is that it allows you to trade options on stocks and stock indexes.

In order to have an option account, you must qualify for an upgrade to your margin account from your broker. The broker will then ask you to sign a statement which says that you are familiar with the risks involved with options.

General Tips For Beginners & First Time Investors

The best way to understand the stock market and the value of different stocks is by buying and selling. However, this is also the best way to lose your money if you don’t know what you are doing!

So before you enter the stock market, bear in mind the following advice before you start buying and selling stocks.

Your Investment Goals

Anyone who is interested in making money from the stock market needs to have clearly defined investment goals.

For example, are you looking for some short-term investments which you can profit from in a short time period? Or are you looking for a safer longer term investment which will gradually increase in value over the years?

Your investment goals will largely dictate your activity within the market.

What Information Do You Have?

In order to become a successful investor, you need to make decisions about what stocks to buy and what stocks to sell. To make these decisions, you need a reliable source of information. Where will you get such information?

Why Do You Want To Invest?

Are you looking for appreciation (capital gains) or income (dividends)? What you want out of the stock market will determine the type of investments you make.

Research

Every investor needs to research the market and the companies which they are thinking of investing in.

Is a company you want to invest in profitable? Will it be profitable in the future? The research you do will influence the stocks that you buy.

Winning Industries

One of the secrets to selecting good stocks in the stock market, is to buy stocks from companies in rising industries. Such companies are likely to grow faster and be more profitable than other companies in declining industries.

World Events

The stock market responds to changes that occur in the world and also to changes that occur to companies. In order to know when to buy and sell stocks, you need to be aware of such changes and how they will affect the investments you have made or wish to make.

Trends

If you study the stock market over time, you will notice certain trends. Sometimes the value of your stocks will go up and sometimes they will go down. Getting a feel for such trends will make you a much better investor than someone who is taken by surprise when these changes occur.

Study Successful Investors

If you are new to the stock market, then one of the best things you can do to ensure that your investments are successful is to study the experts. Look at people who have been investing in the stock market for a long time and learn from them.

Keep The Money You Earn

If the value of your investments increase over time, then you can either hold onto them or sell them. Successful investors who are in it for the long-term tend to hold on to more than they sell.

Do not make the mistake however, of becoming emotionally attached to your stocks. Doing so is likely to cause you to hold onto bad stocks when you would have been better off selling them.

Look At What People Do Not Say

Very often it is far better to look at what people are investing in than it is to listen to what people are saying. Again, look at the experts and see what they are doing.