The first step toward investing in stocks is gaining a clear understanding of what stocks are, how they work and how they can be used to earn a profit. Here are some tips.
Instructions
1. Understand the two types of stocks. Common stock possesses voting rights and shared dividends. Noted as the type of stock held by the majority of the public, common stock is the only type that can go “up” or “down.” Preferred stock possesses fewer rights but has first call on dividends. In general, large companies and investors purchase preferred stocks to gain return on the dividends. With larger and more consistent dividends paid out to investors, preferred stock is the No. 1 choice for these types of large investors.
2. Understand the concept of liquidity. The trend for large companies is not only to sell shares of stock but sell them frequently. Stocks can be traded publicly on the open market. Depending on market fluctuations, the value of a stock can increase or decrease dramatically. With the active nature of the stock market, it is best to let a stock "ride out" these changes to allow for a greater long-term profit. It is important to note that the high liquidity of common stocks is another reason why common stocks are held by the majority of the public.
3. Determine your investment. Decide how much money you are willing to lose. It is important to invest from that standpoint to invest with confidence. Never invest money in the stock market that you cannot afford to lose. When investing, understand and calculate risk factors to determine how much money can be invested without causing severe loss.
4. Research the market. Consider an initial small-share investment into a larger corporation like Microsoft. This will allow you to track your investment more easily, stir interest in the investment process and gain confidence as an investor. Read the Wall Street Journal and other market publication as you continue to ask questions and research how the market is changing. Over time, you will learn to make predictions and projections that could increase your wealth.
5. Project the value of a stock based on past activity and when to add or pull out of an investment. An investor must be comfortable with small "failures" in order to see long-term wealth and success as an investor. A wise investor understands that the market will change and not pull out at the first site of a drop in price.
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