How to Invest in Common Stocks in the Stock Market

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The Stock Market

Investing in the stock market is a risky business. However, there are many areas in which one can invest and either reduce or increase one risk. Usually, the higher the risk, the higher the reward. The investment areas are options, mutual funds, common stocks, preferred stocks, government bonds, etc. Government bonds and mutual funds are the lists risky. However, the returns on these investment instruments are meager. Returns usually range from about 3% to 5%. The area in which I am specialized is common stock, and the focus of this article is about investing in common stock. Investing in common stock has a higher risk than government bonds and mutual funds. However, if you do your homework properly and thoroughly, you will reduce the risk significantly, and the rewards are usually great.

Getting Prepared to Invest in the Stock Market

Before you can invest in the stock market, you will need to open an account with a reputable stock brokerage company. It is preferable to use a bank that has a brokerage division. The reason for this is for you to have easy access to your money. That means you can transfer money from your brokerage account to your bank account instantly. Otherwise, money has to be mailed to you when you make a withdrawal from your brokerage account.

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Next, you need to sign up to have online access to your account. After this is done, you will need to have real-time access to the stock market. Most reputable brokerage companies will provide this service to you depends on your deposit. The more money you deposit, the more services you will get for free. Note – you do not need 15 minutes to delay real-time stock prices. This is no good to you. You need real-time stock prices. Once this is set-up, you are ready to rock and roll.

Common Stock Selection

The Next thing you need to do is to find the stocks that you want to invest in. This part is time-consuming. I did for finding my stocks as follows: at the end of every business day, I looked at the stock market of interest and looked at all the best-performing stocks for the day. In doing so, you will get a stock code necessary for buying, selling, and researching stocks, etc.

The next thing you want to do is to research each stock that you are interested in. You want to look at financial statements and balance sheets for 5 years. Financial statements will tell you if the company is making money or losing money. Also, a financial statement shows you a company sales trend and expense trend. Therefore, you can determine if a company is growing or not. The balance sheet will tell you if the company has money and assets or if it is in debt. If a company’s liabilities are 25% of all its assets, that is a financially sound company. However, if a company’s liabilities are 75% of its assets, it is in serious financial debt and will be a hazardous investment. To be successful in the stock market, you will need to be knowledgeable about financial statements and balance sheets.

Next, you want to research what a company does as a business. Also, you want to know who are the stock’s holders of a company, who is the CEO(chief executive officer), who is on the board of directors, does the company pays a dividend, etc. Also, you want to check all the news headlines about a company for about 5 years. After all, this is done, and you are satisfied with the company, you put this company in your portfolio. You do the same procedure for each company that you are interested in. Note – you have to diversify your portfolio. Invest in companies that are in different kinds of businesses. For example, invest in companies in various business segments – mining, manufacturing, services, etc. Once you have several companies in your portfolio, you are ready to do business.

Monitor Stock Price

The trick to making money in the stock market is to buy low and sell high. Therefore, timing is critical in the stock market. All stocks have a pattern. There are peaks and valleys in every stock. Certain news will drive stock prices down or up. These are the waves that you have to look for. Therefore, you buy on the low and sell on the high. To monitor a stock price, you will have to create a stock chart. Your brokerage company may provide this service. Look for the stock chart.

You may also find stock charts on Yahoo Finance.com, StockCharts.com, and other similar websites. Once you find the service, all you have to do is to enter the stock code. Next, you will have to select a time frame. You can select the maximum time frame and see what the stock has been doing for several years. Next, you can select 5 years and see what the stock has been doing for the last 5 years. You can play around with the stock chart to get a feel of the stock. In the end, you want to figure out the stock low and high price. Being able to analyze a stock chart is an essential aspect of investing in the stock market. Acquiring this skill and becoming very good is very important for making money in the stock market.

Buying and Selling Stocks

Once you have done all your research and are satisfied that you are in a good position to buy, you will buy. That means that you go online and put in a bid to buy a certain amount of stocks at a certain price. Once your bid goes through, you are now a part-owner of a company. All the information about your purchase will be available to you online. Note – the brokerage company will charge you a commission for buying and selling stocks for you. Also, the key to making money in the stock market is to buy stocks in large volumes. You do not have to buy all the stocks in one purchase. You can buy in segments. That means, if you want to buy 2000 shares, you can purchase 500 shares on 4 different occasions – buying leverage.