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.
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Stock Trading Information
If one of the many investor or traders out there wondering what to do with today’s stock market activities, but don’t know who to trust with valid stock trading information, well you’re not alone. Especially for those who are new to the stock market. learning about the stock market takes time, but that doesn’t mean that it’s hard to do. You just have to know where to get the tools and the information.
When I started trading stocks years ago, there weren’t so many websites available that I could go to to get my research done. I used to (and still do) subscribe to IBD (Investor Business Daily). A newspaper which would cover everything I needed to know about the stocks I was investing in as well as other that I was thinking about building a position in. I would also call the companies and speak to the Chief Executive Officer (CEO) or the Chief Financial Officer (CFO). As years went on that all changed. I can now go to dozens of websites to find everything that I need to know about the stock market. I do on some occasions still call the company to get a good idea of what the company is up to.
But what websites do you go to to get what you really need and omit the unnecessary information? Everyone need a stock market guide to help them make the right decisions, but be careful. I know that there are many sites out there that offer to send you e-mails on a daily basis to clue you in on the hottest stocks of the day, but the problem is that most of them are only out there to make a buck for themselves.
The internet has come so far that every company (big or small) has their own website. That is one of the first places you should go when you’re doing your research on a particular stock. If you what to know which ones I use, it will be a very short list. There are only two websites that I use to get any news wire information on a daily basis. The first one is Yahoo Finance and the other is TheStreet.com. Both site offer many tools and up to date information on all stocks that are traded on the major indicies as well as the Pink Sheets and OTC:BB (penny stocks) Why else go anywhere else with two great sites?
Using other websites can give you more work than you need to do when it comes to doing your research.
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Stock Market Basics: Buying & Selling Stocks
Buying and selling stocks can be a very confusing task because there are many things to learn about the stock market basics.
First, one must understand the basics and the foundation of stocks. Stocks are nothing more than parts of ownership in a company. Basically, a company offers stocks to the public to finance their company. Buying stock makes you a shareholder, and in essence, you own part of the company even if you are buying penny stocks.
There are different types of stock that one could buy. First is common stock. Common stock is exactly as it is stated, common, and holds no preferences. When the company offers a dividend, you are entitled to it. The next step up is preferred stock, which means you get a higher priority when it comes to dividends, meaning you get paid first.
Voting / participating stock is also available, where you can vote on issues of the corporation. Stocks of large publicly traded companies are traded on the open market, at such places such as the New York Stock Exchange, NASDAQ, etc. At the New York Stock Exchange, deals are done face to face in person. Prices are determined by an auction format in essence, meaning whoever pays the most, gets the stock. While this is going on, people can sell stocks at that price, and you are actually “trading” stocks. You may never meet the person you are trading with, but in essence that is what happens in two separate transactions.
Stocks can change constantly, due to many different things. It works on supply and demand, meaning if more people want a stock, the stock prices go up, and conversely, less interest equals a lower price. The most common way to purchase a stock are through brokers.
There are in person brokerage companies, such as Merrill Lynch, or you can go online and trade online yourself or through a broker. Online sites such as Scottrade, Etrade, etc let you trade stocks on a real time basis, and only cost a few dollars per trade. Many people may be enticed to buy penny stocks, but those are almost a sure bet to make you lose money.
Overall, there are some basics that were outlined that are important to trading stocks, but to really be successful, there is a bunch more to learn.
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