How to Gain Profit From a Share Market

Prices and profits fluctuate constantly in the stock market.

Share market is another term for the stock market that is more commonly used in Australia and India. Specifically, share markets or stock markets refer to the aggregate actions of investors, traders and institutions all over the world that buy and sell shares of stock in thousands of different companies. Regardless of the term and country, the same principals for turning a profit apply: buy solid, well-run companies at prices that you believe to be reasonable and sell when you believe the price is high.

Instructions

Starting

1. Open a brokerage account. You need an account with a registered brokerage firm if you want to buy and sell shares on the market. Only licensed and registered individuals can actually go into trading systems and purchase or sell shares. Everyone else opens an account and pays one of those individuals to buy and sell on their behalf. Alternatively, you can open an account directly with one of the hundreds of companies that allow direct investments, but you can only buy shares of that company in that account, must keep all your own records and write over the stock certificate if you sell.

2. Compare and understand brokerage rates. Every brokerage company makes money by charging fees for different services. Be aware of those fees and factor them into the cost of buying and selling shares. All brokers charge fees to buy and sell on your behalf, but fees can run anything from $5 at a discount brokerage to $50 at a full-service brokerage. Similarly, some brokerages charge maintenance fees, reporting fees, closing fees, transfer fees and more while others only charge for trades.

3. Familiarize yourself with your brokerage company's tools. Companies offer research, charts, reports and other services that can help you make informed and ultimately profitable decisions.

Profit

1. Buy low, sell high. This seemingly simple adage is the way to make a profit with shares. Unfortunately, no one can know what was high until after the market takes a turn for the worst and no one knows what is low until after the market starts to recover. Investing guru Benjamin Graham recommends buying when you believe shares are cheap and selling when you believe they are expensive, which often coincides with market lows and highs.

2. Research your investments. A quote for a share price means nothing by itself. You must know a company's earnings record, management, debts, assets, shares in circulation and future projections before you can begin to assess if a price seems cheap or expensive -- or even if the company will be around long enough for you to turn a profit.

3. Give preference to dividends. Mature companies with extra cash pay dividends and dividends add returns in addition to share price appreciation. For example, a stock appreciating at 10 percent and paying a 2 percent dividend gives you a total return on 12 percent. Additionally, you can choose to keep the dividends as a little extra cash or reinvest them in new shares at no extra cost.

4. Find solid, growing companies and hold on to your shares. You will make the most reliable profit by buying the shares of good companies at fair prices and waiting for years, even decades, and selling when the market is doing well. Companies with steady growth and solid management appreciate -- go up -- in price over time.

5. Learn patience and restraint. Graham stated that trading risky or "hot" stocks frequently may actually be one of the most sure-fire ways to lose money in the stock market. Additionally, most individual investors lose money when they become discouraged or scared during a market crash and sell shares at a loss, only to see those shares recover in a few years.

Tips & Warnings

• You cannot predict the future, which is unfortunately the only reliable way to make a quick and easy profit with shares of stock. You can, however, learn to read companies' financial statements and discipline yourself to buy and sell only at fair prices, which is a proven way to turn a modest profit over decades.

References

• "The Intelligent Investor"; Benjamin Graham; 2003
• The Motley Fool: 13 Steps to Investing Foolishly
• CNN Money 101: Investing in Stocks
• Share Market Basics: Home
• "Herald Sun"; U.S. Debt Fears Weigh on Australian Share Market; July 2011