1 0 Archive | Stocks & Bonds RSS feed for this section
post icon

How to invest in the stock market with little money

If you are a beginner, familiarize yourself with stock investing basics before proceeding to invest in the stock market.

Investments are not only a way the elite consolidate their riches but a wealth-building tool the average worker can employ quite easily. An encyclopedic knowledge of finance isn’t even necessary if you possess common sense and patience. Investors typically lose in the market in only one of three ways, those being panic, inattention to transaction costs, and failing to account for unknowns.

First let me tell you the fact that your friend has deliberately revealed half the truth! How?  People conceal their mistakes that they make in the stock market of losing money.  Let me further drive home the point that you can’t make money consistently by trading daily in the stock market or one fat buck overnight.  You will be losing more than what you make by trading often.  The odds are more against you if you want to successfully trade and take home money daily.  In short, you cannot win the daily bread and butter in the stock market or one fat buck in a single shot! Never heed to anybody.  You should be able to justify yourself the price for which you bought a scrip. Of course, the money used to buy here has not to be borrowed or cash kept aside for some other purpose.

We’re not here to tell you where to invest your money. We won’t lay out a handful of stocks on a “buy” list. But what we can tell you is how you can invest your money — the mechanics of investing small, large, and medium amounts of cash. We can even help you choose a broker.

Let’s start with $20. We’re going to assume that you’ve already paid off any high-interest debt and that you have some money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency expense. Now you find yourself with a little extra dough, and you want to begin investing for your future.

Is it even worth it to invest such a pittance?

Heck yeah it is! One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.

More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you’re in the plan, you can set up an automatic payment plan, and you don’t even have to buy a full share each time you make a contribution.

How to invest couple of hundreds dollars?

Once you’re up to $600, your investment options open up a bit more. You can still buy an index fund, and now you’ll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio. You should also seriously consider opening a discount brokerage account.

Think buying stocks as buying fractions of businesses that have strong fundamentals whenever they are sold cheap with little or whatever spare cash you have.  Analyze the financials of
the business that you think is attractive. Be it a bull market or bear market, be it a black Monday or a dark Friday, an election year or a non-election year, if you find an attractive business selling at a discount price, never have a second thought.  Buy whatever quantity you can and forget it.  Forget about the humbugs of technical analysis and historical prices.

Go to the article »
29. Jan, 2012
post icon

How to make money selling stocks short?

There is a little secret that is totally unknown to the new investor and even the average investor. That secret is that you CAN make money on a stock no matter what it is doing!! To be more specific, I’m saying you can make money if a stock is going up (the most popular way) in price. You can ALSO make money if a stock is staying flat OR even if the stock is going down in price.

Falling markets always cause investors grief. The media reports any selling in a mortally serious tone, while bullish cheerleaders comfort the masses with promises of better days ahead. Negative sentiment usually intensifies right along with the selling, and desperate prayers are offered to the heavens as everyone nervously holds their breath.

Selling stocks short is a simple way to make money when stocks drop. To “sell short” you simply borrow the stock from your broker, sell it, and then buy it back when the price drops. You then return it to the broker you borrowed it from and keep the profit. Yes, it’s perfectly legal!

Normal investors might scoff at the notion of shorting, but highly successful investors and stock traders aren’t normal. While accepting the fact that the stock market will go in whatever direction it pleases, the latest generation of market players knows how to take advantage of the opportunities offered by the down-side of repetitive market cycles. Maybe it’s time for you to consider short selling too.

Make Money on declining stocks by Short-Selling

You can make money when stock prices drop by implementing a strategy called short-selling. You can also buy put options on a declining stock or set up some options spreads.

If the stock is flat you can implement some short-selling options strategies. However, I would NOT recommend flat out buying a put option. Actually, ONLY buying a put or call option on a stock that is flat is a very bad idea and a sure way to lose ALL your investment in that trade.

I cover different options strategies on my site, so to keep this short and simple, I will just focus on the concept of short selling, or you can check out my other article on options.

Short-Selling vs Long Buying

First let’s discuss the differences and similarities between a “short” position and a “long” position. With a long position you buy something today and hope to sell it at a higher price for a profit tomorrow. With a short position, you borrow money to SELL something today and hope to BUY it back at a lower price tomorrow. With both long and short strategies you are buying low and selling high. The difference between the two is that the order is reversed.

Another major difference between short-selling and long-buying is that when you are long you can hold on to a stock forever. With a short position this is technically a loan since you sold stocks you don’t already own. what this means is that at some point you will be “required” to close out your position and in extreme cases you could be “forced” to do so via a margin call.

Numerous academic studies have shown that more than 90% of mutual funds failed to beat market over the long run and that more than 90% of individual investors lost money in the stock market. Too many people and too many Wall Street experts or mutual fund managers are buying and selling stocks like madmen, with no sound strategy or any hope of long term success. Ironically, they’re the ones who create opportunities for prudent, long term oriented investors.

To be successful in stock market, you either have to become an expert yourself or to seek help from real successful experts. Stock market is such a brutal place that there is no room for half-expert or expert pretenders. The truth is that only a small percentage of disciplined and experienced people earn disproportionate huge amount of return, many times at the expense of the rest. It is an insult to “Wall Street expert” professional title when so many of such “expert pretenders” failed to beat index or merely stay break-even

As you can see, you can make money in ANY market condition, you just need to pick the right strategy (and stock) for the particular market direction. The short strategy works perfectly in a declining market because YOU WANT PRICES TO DROP. On the flip side, you do not want to short a stock in a rising market.

Go to the article »
26. Jan, 2012