How to Make Money in the Stock Market

Making money requires work - even in the stock market. Most successful investors study a variety of sources and ask a lot of questions.

Difficulty: Challenging

Instructions

Things You'll Need:

• Brokerage Accounts

1. Shop for undervalued companies.

2. Find stocks that have price-earnings ratios significantly lower than those of their peer group.

3. Watch for bad news. Wall Street often overreacts to bad news such as missed earnings, which will drive a stock lower than it should go.

4. Pick the jockey, not the horse. Find out who is running the company and where the executives worked previously.

5. Look for strong balance sheets. Companies with low debt loads, positive cash flow and consistently good earnings are good prospects.

6. Check out the portfolios of successful mutual-fund companies. If they are getting great returns year after year, they are holding stocks you might want to buy.

7. Know when to cut your losses. You want to invest for the long term, but you don't want to stick with a consistent loser.

8. Work hard. Do research. Read financial news. Study quarterly and annual reports as well as registration statements, looking for trends and opportunities.

9. Grill your broker. If the broker is recommending XYZ stock, ask for a detailed explanation, with an eye to growth prospects and historical performance.

Tips & Warnings

• Go online. Dozens of Web sites offer financial news, advice and analysis.
• Use a discount broker, not a full-service broker, if you know what you are doing and you have time to execute your own trades.
• Check out freeedgar.com, which offers registration statements, quarterly and annual reports, and other SEC documents online - all for free.
• Take advantage of the employee stock ownership program at your place of work, if your employer offers one. You can buy your company's stock at a discount.
• Full-service brokers make money on activity, not on the quality of their trades, so don't assume your broker is always working in your best interests.

[bella777]

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on 8/8/2006 Are you one of the many people who have no time to do detailed analysis, but want to do some stock trading? Then these tips might work for you (no guarantee implied).

Buy a good stock when the market is really down.

Hold onto it for the long time. Only invest money in stocks that you can completely lose, don't invest a loan on stocks.

If the price doubles, sell half the number of shares.

If it goes up by a certain percentage (which you have to fix depending on your personality) sell some shares. If it comes down again, buy these shares back. You will have the same number of shares but would have improved your position.

If it goes down by a certain percentage (which you have to fix depending on your personality), buy some shares. If it goes up again, sell these shares and you would have improved your position.

Work on continuously improving your current position like this. I call it my "churning" method and have made decent returns using it in the past.

on 8/8/2006 The Dow Jones Industrial Average is the 30 largest companies in the United States. First, get a current list of these companies. Now, find the dividend yield of all 30 companies. Dividend Yield = (Annual Dividend) / (Current Share Price). Now put equal amounts of money in the top 5 dividend yielding companies. Wait a year. Repeat this process and buy/sell so that you own the new top 5 dividend yielding companies.
The reasoning behind this strategy is that you are investing in big established companies that are in tough times. These companies will probably not reduce their dividend and you will be able to reap a high dividend while these companies recover. These companies usually have stellar management and loads of cash, they will most likely be able to find new markets and pull out of their rut, thus exposing you to higher than normal growth.
It is advisable to throw out any stocks that have been hit by very hard times. If you think badly about the future of any of the companies that this strategy tells you to buy, skip them and buy the next.

on 6/30/2006 Here is a simple strategy that can take some of the emotions out of buying and selling while consistently providing good returns.

The Dow Jones Industrial Average is the 30 largest companies in the United States. First get a current list of these companies. Now find the dividend yield of all 30 companies. Dividend Yield = (Annual Dividend) / (Current Share Price) . Now put equal amounts of money in the top 5 dividend yielding companies. Wait a year. Repeat this process and buy/sell so that you own the new top 5 dividend yielding companies.

The reasoning behind this strategy is that you are investing in big established companies that are in tough times. These companies will probably not reduce their dividend and you will be able to reap a high dividend while these companies recover. These companies usually have stellar management and loads of cash, they will most likely be able to find new markets and pull out of their rut thus exposing you to higher than normal growth.

It is advisable to throw out any stocks that have been hit by very hard times. If you think badly about the future of any of the companies that this strategy tells you to buy, skip them and buy the next.