Investing for beginners Part 3:
Have you opened the brokerage account yet? If not, please see my previous article.
This is the stage that you are going to make money work for you instead of continuing to work for money. The only way to make money is either you work to get paid, or you invest the money, and it pays you.
If you want to start investing in the stock market, you will need to invest in very good companies. There are several things to consider when analyzing what companies buy. For example, would you invest in a company that goes against your values? Probably not!
That is the best place to start from when you are considering starting investing.
Do you want to part easily with your hard-earned money? Then do not invest in things you do not UNDERSTAND.
One of the greatest investors of all time is Warren Buffet and he has insight on this: “Never invest in a business you do not understand.”
If you do not know what a certain company does but you hear people talk about it and tell you how much you are missing out that is okay. Take it from the greatest investor.
If you know how bicycles work and you see a company that makes bicycles then that is a good investment rather than choosing a company that plans to do mining on the moon for example.
As Albert Einstein said: “If you cannot explain it simply, you do not understand it well enough”.
Therefore, a rule of thumb is that you should be able to explain the company that you are investing in. If you cannot then watch out and you should consider selling the shares of that company.
This doesn’t mean you need to know where the president of the company lives, how many employees the company has when it was started etc. but you better know what product or service the business does well.
There are so many companies to choose from that this rule must be followed all the time. This is especially true if you are doing the investing yourself and have no financial experts (who know other fields) working for you, which I assume you do not have. Just the New York Stock Exchange (NYSE) has over 5000+ companies and you do not even need 100 to be a good investor. So do not feel like you are missing out because you are not!
How do you make money in the stock market?
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Share Growth (The Pie Grows)
After you buy the company (pie), you are a shareholder (pie holder). If you buy a good pie most people will want to have a piece of the pie.
Since so many people come asking for the same thing, you know what happens when everyone wants the same shoe or ticket. Yes, you got it ~ the price goes up.
If the demand for the company you bought increases that means that the value of the company also increases.
If you buy a share price at $10 and the value of the company goes up, the share price can go up to $13 or higher.
Simple Math I promise:
If you buy 10 shares each costing you $10, then you have invested?
10 shares * $10 each = $100
If each share goes up to $13, then you have made?
10 shares *$13 each = $130
What does the share increase in dollar amount?
You have gained $30 ($130 made– $100 cost).
How do you get this $30 if you wanted to go use it? You will have to sell your shares, which is very easy and can happen in milliseconds. Yup you read that right! Milliseconds, that is how quickly the transactions happen.
The share price could go down as well and that is why we talked about buying a good company, which we’ll talk about in future articles.
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Dividends (money you get for owning a share)
This is my favorite way of making money in the stock market and I have used it to invest in other businesses and to start my business after getting the dividends.
So, whether the share goes up or down it doesn’t matter if you still get your dividend! (Yeah!).
Not all companies do this and some companies that give dividends can change. That is why I talked about choosing good companies that pay dividends all the time! That is what I look for.
Sometimes it is as simple as no dividends no investment for me!!
The best way to get your money give back to you is through dividends in my opinion and there are investors who just invest to get dividends.
The game now is what companies should I buy?
PLEASE DO NOT ASK YOURSELF WHAT STOCKS YOU SHOULD BUY INSTEAD ASK YOURSELF WHAT COMPANY SHOULD I BUY
It is very important you look at the stocks as companies providing value to people. When you buy shares of Walmart for example, think of the hundreds of employees that the company employs and your money will go to pay for their vacation, mortgage etc. In return, you will make money by how much they work for Walmart (technically they work for you now since you are a part owner of Walmart!). If you work for Walmart then even better you work for yourself as both an employee and part owner of Walmart.
That would change most people’s Monday morning feeling of going to work if they partly owned most of the companies. Imagine how you would talk to a sales representative who wanted to sell you something from the company you own?
Always pursue a WIN-WIN mindset in the stock market. More value = more returns!!