What Does It Mean To Invest In The Stock Market?

Investing is a term that is used to refer to the act of putting money into financial schemes or shares with the expectation of receiving a profit, when it comes to the stock market, investing means buying and selling of stocks or securities. For you to successfully know how to invest in the stock market, you have to understand the basics of how the market works. That includes the rules and the risks involved in the stock market. Understanding the stock market and the way it works is pivotal if you want to be successful in the business. First and foremost it is important to note that it is not a quick money scheme and that it takes skills and expertise to be able to succeed in this business. Secondly, the financial market is not for the faint hearted. This is a business that is risky and you need to be able to cut your losses.

How Does The Stock Market Work?

Before you can understand what it means to invest in the market, you have to know how the stock market works. It is basically the buying and selling of shares (securities) that are listed on a financial market for sale. Once a company goes public it lists shares in terms of stock, you can then buy the stocks. The stocks give you some ownership of the company and depending on the type of stock you buy you can vote at any shareholders meeting.

Understanding The Stocks

Investing in the stock market means that you have to buy and sell stocks. That is the reason why it is important to understand what stocks are and the different types that are available. The major type of stocks on the market, are called the share stocks. The share stocks are the smallest unit in the ownership of the company. There are two types of share stocks;

Common Stocks

Preferred Stocks

These two types of stocks are different in features. Once you buy a common stock, you are guaranteed a voting right. Every share earns you a vote so the higher the shares the higher your voting power. Preferred stocks on the other hand don’t have the voting rights, but the shareholders get dividends that are calculated at a fixed rate. The common stocks are calculated in variable rates. In an event of liquidation, the preferred shareholders are paid first before the common stock holders.

How Do You Earn In The Stock Market

Investing in anything usually means that you will get your money back with interest. Now, when it comes to the stock market, you get your returns in two ways. You can get your money back through dividends that are paid by the company either quarterly or semi-annually. The dividends are usually calculated in reference to the company’s earning and performance. The dividends are usually calculated in fixed rate or variable rates. The other way that you can earn money from the stock exchange is when the stock you bought appreciates and you sell it. The market is very unpredictable and you are advised to sell your stock once it appreciates if you want to earn good money.

Considerations

There are certain considerations that you must keep in mind if you want to know the stock market business.

1. Factors Affecting The Stock Value

You have to know and understand the factors that affect the stock value before you can invest in the stock market. There are internal factors that affect the value of the stock directly. The internal factors include the introduction of a new product and service to the market, the employee layoff, the change in management and many more. The external factors may affect the stock value directly or indirectly. The external factors include the foreign exchange market, the inflation, interest rates, just to mention a few.

2. Time

For you to successfully invest in the market, you have to commit not only money but time. You have to consider the amount of time you are willing to invest in the business. You can choose to become a part time or a full time trader.

3. Number Of Stocks To Buy

In the stock market you can buy and sell as many stocks as you want as long as you know the risks involved. You are however advised not to buy many stocks from one company. It is recommended that you start with buying a few stocks as you learn the business.

Effects Of Investing In Stock Market

Stock market is a risky business and if you choose to invest in it you must be ready to cut your losses. It’s estimated that only a small percentage of the people in the stock market become successful in the business, while the remaining number loses most of their investment. You have to invest time to understand the stock market, and acquire the relevant skills.

Best Stock Funds to Make Money Investing in a Bad Stock Market

Anyone can make money investing in stocks or stock (equity) funds in a good stock market – but few make money investing in a bad market. If 2014 and/or 2015 turn ugly, there’s a little “secret” about the best stock funds you should know if you are into stock investing.

I competed in the last CNBC international stock investing contest and beat 99.9% of the competition. This was in late 2011, and the field of competition included about half a million investment portfolios (trying to win the $1 million first prize). The market took a hit, and that’s what I was betting on… so I loaded up on the best stock funds available at the time. Secret: You don’t make money investing in equities (stocks) by trying to pick winners in a bad market. You make money by betting against the market. And that’s what I did, taking advantage of all the financial leverage the contest would allow. Most investors do not know that you can bet on the downside.

With the market UP about 150% since the lows of 2009, the years 2014 and 2015 could spell trouble for stock investing and investors who think they can pick winners. In a BEAR market the VAST MAJORITY of stocks fall and the biggest winners of yesterday become today’s big losers. Period. The good news is that these days the process of betting against the market is simpler than ever. All you need is a brokerage account with a major discount broker. Then the best stock funds to make money investing in stocks in a bad market are available to you at a cost of about $10 a trade.

These best stock funds are called “inverse equity” funds. Simply stated, they are index funds called ETFs (exchange traded funds) and they trade just like any other shares do. To get your feet wet, I’ll give you an example. The symbol SDS is a bet that the market (as measured by the S&P 500 Index, which represents the 500 biggest, best known corporations in America) will FALL in value. If the stock market (the S&P 500 INDEX) falls 1% in a day, SDS should go UP 2% (inverse leverage of 2 to 1). If the market in general falls 50% in 2014 and/or 2015, the price of SDS should go UP 100% (a double).

During the great DEPRESSION of the 1930s, some investors got rich as the market unraveled. In 2000-2002 and again in 2007-2009, the market tanked and some folks got rich by “short selling” or taking a “short position”… by betting against the market. Today, taking a short position is easier than ever before… and even the average investor can do it with inverse equity ETFs. You simply buy them and hope the stock market falls. Then, you try to time it so you sell them for a tidy profit if it does. In the old days the process of selling short was a bit more involved.

Most of the time stock investing is lucrative, but every few years it gets ugly. You will never make money investing in stocks on a consistent basis. No one does, and not even the best stock funds in search of the best companies to own come close… because they are designed to bet on the upside. When the tide for equities goes out, at least 90% of stocks traded are losers. If you want to beat the stock market you’ve got to know when to hold them and know when to fold them. If you really want to make money investing in stocks you’ve also got to know when to short them.

These best stock funds for a bad market (inverse equity funds) are NOT for average investors who are investing money for retirement passively. These are only the best stock funds for those who want to play the stock market game actively (with simplicity) to do the best that they can. Stock investing is a big part of the game if you really want to put your money to work and make it grow. If you can make money investing in stocks in the bad years you’ll be WAY AHEAD of the game. But it will require some time and attention on an ongoing basis.

Looking at 2014 and 2015, I think that the party may be over. If you are heavily into stock investing vs. bonds and safe investments, I suggest you take some money off the table. If you want to be more aggressive and try to make money investing in stocks in what could be a bad market I suggest giving inverse equity funds a try. The financial leverage they offer is 2 or 3 to one. You can get more leverage than that with stock options called PUTS, but these can be much riskier… because here you pay a premium for time and eventually they EXPIRE on a given date and can become worthless.

What I am calling the best stock funds for a bad stock market do not expire. They are simply stock index funds on steroids that move opposite in price to the stock market in general. I suggest you start by experimenting with SDS before you try to make money investing by going “short” part of your investment strategy for 2014 and beyond. If you find that you are not comfortable playing the short side – you can always sell and get out.

How Long Does It Take To Make Money In The Stock Market?

The answer to this question depends on so many factors. It is next to impossible to predict how long it will take for one to make money, as the stock market is unpredictable. How long it will take for you to make money depends on factors like the type of stock you bought, the company one has invested in, and the timing of buying or selling of stocks. One thing you have to understand is that stock market is not a fast money system, and it may take a while before you can start enjoying your investment. It is important for you to know how stock markets work, so as to know how long it will take for you to make money.

How Does The Stock Market Work?

As you know the stock market is a place where people buy or sell shares of a company. Once a company is branded as a public operated company, it releases shares in terms of stocks so that people can invest in the company. Once you buy the stocks of the company you automatically own a small part of the company. People earn from the company when the company increases in their profit if the company makes loses then also the stocks depreciates. You earn from the stocks in two major ways; you can earn when your stock appreciates and gains value or through dividends. Most companies pay their shareholders dividends from their profits either on quarterly, semi-annually or annual basis depending on the type of stock.

Different Types Of Stocks

The type of stock you buy has a lot to do with how long you will have to wait to get your investment. There are different stocks offered by the public operated companies but there are two major stocks that you will come across in the market.

1. Common Stocks

The common stock is the first major type of stock out there. As mentioned above, buying of company stocks gives you some sense of ownership of the company. When it comes to common stocks the shareholders own voting rights in any shareholders meeting, although this depends on the amount of shares that one has. The shareholders are given the liberty of voting one vote per share. When it comes to earning from the common stocks, you will get dividends although the dividends are not guaranteed by the company. The dividends are calculated in a variable rate. When you invest in this kind of stock, you will receive your dividends after the other preferred shareholders have received their amount in full.

2. Preferred Stocks

These are stocks that give you some degree of ownership although the stocks do not give the shareholders voting rights. The preferred stocks are calculated on a fixed rate. These stocks come with great benefits, for example, you will be paid first before the stock shareholders in an event of liquidation. Since the dividends are calculated on a fixed rate, it is easy for you to get a lot of money by buying many shares in the company. With these stocks the company can buy the stocks back anytime.

How Do Stock Prices Go Up Or Down?

This is a very important question to ask if you want to determine when you will get your investment back. The stocks are unpredictable and they are constantly changing their value but you can still predict how the stocks are trading by looking at the supply and demand concept. This concept dictates that once the demand is high the supply goes high and when the demand goes down the supply goes down. When it comes to stocks, the supply and demand concept work the same way, when the demand for a certain stock is high, that is there are many buyers than sellers the price of the said stock goes up. On the other hand the demand of a stock goes down when there are more sellers than buyers which make the prices of the stock go down.

Factors That Influence the Stock Market

Stocks prices are usually affected by certain factors, directly or indirectly. Some of the factors are predictable and others are not. It is therefore very important for you to know these factors so that you can determine the correct time to trade your stock.

Internal Factors And Unpredictable World Events

The internal factors affect the stocks directly. These are factors that are generated from inside the company and they include; introduction of a new products, mergers of companies, suspension of dividends, fraud, negligence, earning reports and many more. You need to know the internal factors firsthand before investing. When it comes to world events, there are certain events that can adversely influence the value of a stock. Events like war, terrorism, natural disasters like hurricanes. The world events influence the trading of the stocks as the investors look to invest of stocks with less risk. The events may directly or indirectly influence the stocks.

Interest And Exchange Rates

Here is how it works with the interest rates; during inflation the companies raise the interest rates to combat the inflation. In turn the investors sell their stocks at a higher rate to the government and secure the bonds hence protecting their investments. This can influence the value of the stock in the long run. The exchange rates on the other hand, have a direct impact on the stock value. The exchange rates do influence if investors will invest in a country or not, this affects the prices of the stocks of the said country. There are short-term movements and long-term ones. The short-term movements are influenced by things like events and news while the long-term ones are brought by the market forces of supply and demand.

The bottom line, the period of time you have to wait to make money varies depending on the type of stock and the company you have invested in. The time you bought the stocks also play a huge role in determining how long it will take to make money in the stock market.