Stock Investing Basics
Many new investors and traders are always looking for different ways to beat the stock market, but the truth is that if you can learn the basics and study the trend of the markets, that all you really need to know to make it in the stock market. What are the stock investing basics? Well there are quite a bit of them, but I will try to give you just some of them in this post.
One of the key thing you need to know before you start trading stocks is that you need to do research on each of the companies that you want to invest in. You can’t just say I like a particular stock and buy shares of the company. You have to know if the company is doing the right thing and making a profit. Is the Chief Executive Officer (CEO) a successful businessman? Does he have what it takes to make the right call for the benefit of the company and it’s shareholders? Is the industry that the company in on an upswing or head in a downward motion? A company can be doing the right thing, but if the industry and it’s competitors have a bumpy road ahead of them because of the economy, it’s most likely that they may suffer along with the rest of them. Of course that is not the case all the time, but it can play into the price of the company’s stock.
When you go to build a position in the company, you must do it incrementally. You have to figure out how much you are going to invest in the company (usually no more than 20% of your portfolio). Buy 20% first just in case the stock pulls back a little. After a healthy pull back (typically 5-8%) you invest another 30-50% of your total investment in the company. if it continues to pull back, well then you buy the remaining shares to help lower your cost basis ( average price per share).
Another Stock market basic you need to realize is that there is no sure thing as a good stock tip. If anyone has inside information on a certain stock, they wouldn’t be telling you. It’s against the Security Exchange Commission law to divulge any information that could give anyone a leg up on the other investors. Martha Stewart went to jail for insider trading within her own company.
In future posts I will list a few other stock investing basics to help you get better and to make more money in the stock market.
Tags: cost basis, investing basics, investment, investor, security exchange commission, shareholders, Stock Investing Basics, Stock Investing Basics, stock market, Stock Market Basics, stock tip, stocks, trading stocksRelated posts
Stock Market Basics – Core Position
In learning stock market basics, you will improve your returns and minimize your loses. Of course none of us want to lose any money, but it’s part of trading stocks. Everyone loses money at times in the stock market and if someone tells you that they’ve not lost money in the stock market, he’s only telling you half the story.
I’ve lost money over the years and in the beginning in bothered me quite a bit. Whenever that happened, I’d look at what I did and looked to see where I went wrong. Sometimes it was my research wasn’t thorough enough, other times it might have been the way I bought into the company. There were also those times that I didn’t do anything wrong, but because of the condition of the stock market as a whole, I would be on the losing end. Either way, I learned something for the next trade. Education is the key to wise money investments especially when you’re a beginner.
In this post I want to talk to you about “core position”. A core position is the stocks that you originally buy at a particular price. I’ve mentioned before about buying your shares incrementally and not all at once. So the first batch that you purchased would be considered your core.
In this example I’ll talk about company “XYZ”, which has a a price per share at $50. For this example I will also state that the cash in my portfolio is valued $50,000.
I never put more than 15% of my portfolio in any one stock. With that in mind, it would mean that I won’t invest more than $7,500 in “XYZ”. That tells me that I can only purchase 150 shares of “XYZ”. My first purchase will be 50 share at the price of $2,500, while keeping the rest for later buy-ins. The stock drops $5 per share in the nest week. I will go ahead and buy another 25 shares of “XYZ”, which will cost me $1,125. Another week goes by and the stock has been going up and down between $45-$50. I will simply sit on the sidelines and wait before doing anything. If the stock takes a dive because the markets have dragged it down I’ll buy my next buy at $40, costing me another $1000.
I now own 100 shares of “XYZ” with my average cost basis being $46.25. I’ve only invested so far $4,625 into the “XYZ company. If I had bought all of the shares at once, it would have cost me $5,000 (saving me $375).
When the stock goes back up to $50, I’ll only sell 50 shares of the stock (the ones the I bought at $45 and below). I will make a profit of $375 for those shares that I sold. While at the same time I continue to hold on to the original 50 shares.
When the price drops back down to the $45 range I will again pick up another 25 shares and start the process all over.
It the price had gone up after buying the first 50 shares that would have been fine also. I would pick up another 25 shares at $55. Once it rose above the price I would either waited for the price to drop back at the $50 level or if it kept going, I would just ride out the gains as it went up in value.
Tags: core position, cost basis, money, stock market, Stock Market 101, Stock Market Basics, Stock Market Basics, trading stocksRelated posts
Stock Market Basics
As mentioned in earlier post, there is quite a bit that one would need to know if they want to be successful in the stock market. Stock market basics is here to help with the simple knowledge of the stock market. Quite a few people think that it’s hard to trade stocks and to make money in the stock market unless you’re a professional. I have to say that there’s nothing further from the truth.
If you want to make it trading stocks in the market then you will need to be aware of the dangers and common mistakes that the average trader makes when they make their trades.
I’m sure that you’ve heard many times that the basics behind trading stocks is to buy low and sell high. No kidding, I’m sure you already knew that even before those foolish commercials on TV told you that. It’s a little more than just buying the stock at a low price and wait for it to go up in value.
Many times you will get in a stock and afterward you watch it come down in value. That happens more times than I can remember. I’m OK with that because I don’t buy all my shares at one time. If I buy a stock at (100 shares at $15.00) and it drops down to $12.00, I don’t panic, I look to make sure that the company hasn’t done something wrong that would cause the price to drop. If the reason that the price came down was because of profit-takers as well as the market falling and taking my stock with it, I will go ahead and buy my next group of shares in that company. Let’s say I buy another 100 shares at $12, now my cost basis is $13.50 per share. When the stock goes back up to the $15 range or better, I’ll sell 100 shares and keep my core position.
If I was to panic and sell the shares when it dropped to $12, I would have been out $300 (100 @-$3). Patience is a virtue and is a necessity when deal with the stock market.
Tags: cost basis, money, stock market, Stock Market Basics, Stock Market Basics, stock market stock, trading stocks