People are ALWAYS asking me how to make money by investing in the stock market. And since I was lucky enough to have made a significant amount of money through investing, I have no problem giving a quick run-though of what one should do and not do to increase triumph and lessen risk.
Of course, like every successful investor, I’ve made mistakes. It happens to all of us; anyone who claims they’ve never been involved in a bad trade is either very new to investing, or they’re full of crud.
Before I continue, here’s a quick rundown of investing in stocks:
When you buy a share of stock, you’re now an owner of that company. And the more shares you have, the more of that company you own.
And naturally, there are good, profitable companies out there and there are crappy companies that are bad investments.
So how do you know if a company is good or bad? Well, here are the four most important things you need to look at:
1. Earnings Per Share: This is the amount of cash the company earns per share of stock. If a company has 1,000,000 shares of stock and earns $1,000,000, the earnings per share would be $1. Before investing in a company, it’s essential to know: is the company making a profit or not?
2. P/E Ratio: Look at a stock’s P/E (price to earnings) ratio. The lower the number, the better value a stock typically is. For example, a stock valued at $10 that earns $2 per year has a P/E ratio of 5. That’s a pretty strong number; that seems like a great value pick to me.
3. Future Forecasting: During a company conference call, a company will tell you where they believe the future of the company is heading. And this includes both the good and the bad—whether potential problems or any new opportunities.
Knowing these facts is like having a crystal ball, and it’s amazing how many investors ignore a company’s future forecasts.
4. Earnings Reports: If a company’s earnings increase quarter after quarter, it’s a positive sign, and the share price should climb higher. But if profits are less and less each and every quarter, there’s a reason; and dwindling profits could eventually lead to an operating loss. Yikes! (And that means a lower share price.)
Some stocks have a dividend. A dividend is a cash payout you receive from the company—a set amount. A dividend is often given quarterly, though some companies give a monthly dividend.
It’s a nice investing option to have: a dividend tends to come from a profitable company (very rarely does a company with an operating loss continue to offer a dividend—but it does happen). Though just because a company doesn’t offer a dividend doesn’t necessarily mean it isn’t a good stock.
Dividend stocks are usually a safer investment, but they generally don’t experience the type of gains a riskier stock would. Of course, this is both good and bad, for riskier stocks can bring higher gains (though they can bring higher losses also—that’s why they’re risky!).
To combat risk, here are a few pieces of advice:
-Don’t Invest In Just One Stock!: Heed my advice. When you put all your money in one stock, it’s all or nothing. If your money is invested in one company and the stock happens to drop significantly, you’re going to lose the majority of your investment. Instead, invest in multiple companies. That way, if a stock tanks, your loss is minimized.
-Just Because a Stock Drops In Value Doesn’t Mean It’s a Bad Investment: On some days, each and every one of your stocks will go down. This is usually attributed to a bad market day. And although it’s a good idea to keep tabs on your stocks, don’t become obsessive. As long as the company is making steady money, it should be fine.
Here are some other popular investments:
Bonds: These are fixed-income securities. They’re founded on debt, so when you invest in a bond, you’re essentially loaning money to a company or government. In exchange, they pay you interest.
Bonds are low-risk, but they’re also low-return.
Mutual Funds: A mutual fund is a collection of stocks or bonds. An investment manager (or managers) chooses the stocks/bonds. One nice thing about mutual funds is because they’re a collection of stocks or bonds, they’re less-risk (when compared to purchasing one particular stock).
Different mutual funds contain different stocks or bonds. Some funds are made up of stocks from a specific sector (such as oil companies), while others consist of large-cap companies (established, well-known companies).
But due to the lower-risk, it typically takes decades to become wealthy from investing in mutual funds.
Currency Trading: Trading foreign currencies can be lucrative, but it’s also risky. I won’t get into currency trading because the amount of money I can make isn’t worth the risk.
Precious Metals: Investing in gold, silver, and other fine metals is a good investment opportunity; and it isn’t high-risk. Another benefit is gold and silver aren’t a company, so there isn’t a risk they’ll ever go out of business.
The only drawback to investing in gold or silver is that the boat has already sailed—gold is near its record high.
Silver is much higher than it was a few years ago, though it’s not near its highs. Personally, I prefer to invest in silver over gold, but there are better investments out there.
In finance, a binary option is an option vehicle where you invest in a specific company or currency and its direction (predicting whether it goes up or down in value). If you are correct, you receive a set profit. And if you fail, you receive nothing.
When I invest in a binary option, I only make the bets I feel strongly about—the ones that are almost guaranteed to make me money. And because of this, I’m rarely wrong. This is how I make a significant amount of money.