How To Make Money Stock Trading
So you want to make money in the stock market. To do that you have to have a method. The only way to make money is to have a plan.
There are two ways two make money in the stock market everyone talks about, but you will be a lot better off if you combine the two of them. I'm talking about growth investing and value investing here. You know buy when it goes up or buy cheap and sell high later. Combine both.
Growth investors invest when they see the potential for big earnings growth in a company and don't worry how about high or low a stock is valued at. All they want is to see earnings growing. William O'Neill of Investor's Business Daily is the most popular growth investor, because he wrote the book How to Make Money in Stocks that shows you how to be a growth investor. He buys stocks in companies that have quarterly earnings growth of 20% or more. If the company has a new product coming out he likes it even better. He also only buys stocks that are acting stronger than other stocks in its group, although many other growth investors do not look for this.
In bull markets it is the growth stocks that go up the most, because everyone likes things that go up and they go up the most. But there are some scary times in the growth stocks. If the earnings growth stops then the stock can fall very hard because everyone thinks everything will grow forever.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Because growth stocks tend to be highly valued they are susceptible to large and sudden drops on any negative news. An earnings warning or statements from a CEO that earnings are going to grow at a slower pace are enough to crush investors. Strategies based on growth stock investing do not tell investors to sell until it is too late.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
One problem with value investing is that even after a company's earnings picture improves often its stock does not immediately respond. For instance when the price of gold fell from over 400 to under 260 between 1995 and 1998 the stock of large producing gold companies fell to ridiculously low valuations. However, it took two years for gold stocks to start to rally after they bottomed out.
Value investing strategies usually do not do as well as growth strategies in a bull market, because growth stocks go up more. But they are the best way to get in cheap and sell at a big gain. It can sometimes just take more time than most people can wait for. - 23222
There are two ways two make money in the stock market everyone talks about, but you will be a lot better off if you combine the two of them. I'm talking about growth investing and value investing here. You know buy when it goes up or buy cheap and sell high later. Combine both.
Growth investors invest when they see the potential for big earnings growth in a company and don't worry how about high or low a stock is valued at. All they want is to see earnings growing. William O'Neill of Investor's Business Daily is the most popular growth investor, because he wrote the book How to Make Money in Stocks that shows you how to be a growth investor. He buys stocks in companies that have quarterly earnings growth of 20% or more. If the company has a new product coming out he likes it even better. He also only buys stocks that are acting stronger than other stocks in its group, although many other growth investors do not look for this.
In bull markets it is the growth stocks that go up the most, because everyone likes things that go up and they go up the most. But there are some scary times in the growth stocks. If the earnings growth stops then the stock can fall very hard because everyone thinks everything will grow forever.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Because growth stocks tend to be highly valued they are susceptible to large and sudden drops on any negative news. An earnings warning or statements from a CEO that earnings are going to grow at a slower pace are enough to crush investors. Strategies based on growth stock investing do not tell investors to sell until it is too late.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
One problem with value investing is that even after a company's earnings picture improves often its stock does not immediately respond. For instance when the price of gold fell from over 400 to under 260 between 1995 and 1998 the stock of large producing gold companies fell to ridiculously low valuations. However, it took two years for gold stocks to start to rally after they bottomed out.
Value investing strategies usually do not do as well as growth strategies in a bull market, because growth stocks go up more. But they are the best way to get in cheap and sell at a big gain. It can sometimes just take more time than most people can wait for. - 23222
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posted by X - Men @ 2:55 AM
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