When You Lose Money In The Stock Market Where Does The Money Go?

It is reported that only 10% of the people who invest in the stock market win or become successful, the other 90% lose their money. Losing money in the stock market is normal, so this means that you will most likely lose money at one point or another. The question that lingers in people’s minds is where the money goes after you lose it. For starters, you don’t lose money you lose the value of the stock, because you cannot earn any money if you don’t sell the stocks you own. The stock price is not the same thing as money; it is usually an estimate of what the stock is worth.

When a company goes public it releases a number of shares that are valued at a certain amount, once you buy the number of shares that you can afford, you become a part of the company. When the company earnings are good, the market value of the shares goes up, meaning that when you sell the shares you own you will get your profits. The vice versa holds true, when the earnings of a company go down because of certain factors, the value of a stock will go down hence selling the stock will not yield any profits. That is how the stock market works.

The Company Is Not In The Picture

Once the money is lost, the company that issued the stocks does not get the money. Primary market is the initial transaction between the company issuing the stocks and you, the buyer. This is the only time that the company can receive money from you. Although, the company can buy all the shares back, you have the right to sell the stocks anytime you want. The company does not receive anything from the stocks whether the market value is good or not.

Does The Money Disappear?

Regardless of whether the market is appreciating or depreciating, it is the supply and demand drive that determines if you will lose or gain money. Going back to the question, once you lose in the stock market, the money does not disappear; the value of the stock depreciates which might cost less than the original price.

Reasons Why People Lose In The Stock Market

Before you can understand where the money in the stock market goes, you need to understand why people lose in the first place.

People lose money due to the unpredictable market value; once the company is affected by the internal or external factors negatively, the earnings of the company drop, hence the market value of the stock drops.
The timing of investing in the market influences the gain or loss of stock value; investing during a recession is beneficial, you will own your shares at a cheap price.
Being too hasty; it takes patience to be able to get your investment back in the stock market. Most of the new investors usually trade with haste as they want to make quick money. Stock market does not provide quick money. You have to develop patience if you wish to make profits.
How To Avoid Losing Money

It is important for you to learn how to avoid losing money in the stock market. This way you shall ensure that you get your profits back. Below are tips to help you avoid losing money;

1. Identify And Observe The Market Phase

The market phase refers to the trading or the trending times of the stocks. If you are unable to understanding the market phase you may end up investing using the wrong indicators. It is thus important for you to observe the market phase. Don’t buy a stock based on its past performance. The stock value is based on the performance of the economy. This means that a stock might be up during a period of time and down in another.

2. Take Emotions Out Of The Equation

In the stock market, if you want to make money, you trade first and ask questions later. If you have a stock that is gaining sell it in an instant and don’t debate about it. This is because the market is unpredictable and the stock value may depreciate fast. You also need to be patient, don’t quit the game because you have lost money in the first round. That is the nature of the business.

3. Observe Before Trading

If you are new to the stock market it is recommended that you learn about the basics before you invest. This will help you avoid any mistakes that might cause serious problems. It is also good to observe the trend of the stocks before buying or selling of the stocks.

Losing money is inevitable in the stock market. What matters is not the fact that you lose money or where the money goes, but how to avoid the mistakes you made before.

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.

Stock Market Basics For Beginners – All You Need To Know

Rookie stock market investors are those who only possess a relatively rudimentary knowledge and experience of the investing sphere. Most of these individuals usually commence by sticking to a ‘buy and hold’ trading strategy. As a beginner, your general experience in investment trading is very limited. This, for the most part, confines you to making no more than a couple of trades perhaps on a monthly basis from a cash account. However, this does not necessary signify that you have not placed high expectations on your stock market trading activities. You most likely are very interested in expanding your knowledge as well as investment experience in order to realize the objectives you may have set. This is all nice and good.

Nevertheless, most beginners are generally totally ignorant on the exact time investment and devotion required in investing and trading. This makes a large number of them to be extremely susceptible of initiating failed investments. The kind of stock market investments which are based purely on instincts and hearsay, rather than investments that are based on actual research.

Most rookies usually comprehend the notion of buying low and then selling high. Still, they are very prone to letting their emotions guide their actions, the moment a trade or investment has been made. As a result, many of them can desperately cling to securities with substantial losses. Mind you, even when the exact reasons that drove them to make the initial investment in a particular security become untenable. As such, most of them find themselves hoping or anticipating that a ‘losing’ stock will be able to recover for them to be in a good position of getting back even. In the event higher prices emerge, these beginners then opt to pull out way to soon. This normally prompts them to sell their stocks at break even or perhaps after they have only realized insignificant profits.

Generally speaking, it is always tough for rookies to discern a forest from just trees. Also, they find it hard to recognize if the future prospects of any particular security are auspicious, even if the short term trading trends are not volatile. Beginners are normally successful during strong ‘bull’ markets. But unfortunately find themselves clueless when on tougher occasions, especially when market volatility is higher and ‘bears’ happen to rule. Well, if you deeply feel you fit this description to the T, here then are some stock market basics for beginners, which could be useful.

Make it a point to set realistic trading objectives
Before you decide to make your very first investment, try to ask yourself the following questions. “At what point will you require the money you have invested?” “Will it be after 6 months, a year, 5 years or perhaps much longer?”, “Are you trying to lay a nest egg for your sunset years?”, “Are seeking to obtain the necessary funds to finance your college education or perhaps seeking money to buy a home?” “On the other hand, do wish to establish an estate that you want to leave for your beneficiaries upon your demise?”

Whichever the case, prior to making any stock market investment, you ought to fully determine your primary driving motivation. When you have ascertained this critical point, next consider the most likely time in the future you might stand in need of the funds you wish to invest. Should you require your investment back within just a couple of years, then it will be much better to consider another investment channel. It is very important for you to fully understand that the stock market with its volatility can offer no guarantee on just when your investment will be made available.

Accordingly, you should always make it a point to beforehand calculate how much cash you wish to invest and what kind of ROI you may deem suitable to realize your trading objectives. As a rule of thumb, always recall that the eventual growth of your stock market portfolio relies on 3 interdependent factors. These are the exact capital you decide to invest, the amount of yearly earnings on your investment. And lastly, the exact number of years you wish to invest your capital in the stock markets.

Take the necessary time to effectively determine your risk tolerance
Risk tolerance happens to be a psychological attribute, which is genetically oriented. Yet, it can still be significantly influenced by factors such as education, income or even wealth. The moment all these factors increase in value, risk tolerance also tends to rise. Basically, your exact level of risk tolerance can be accurately described as how you feel about any risk you make. As well as the exact level of anxiety you tend to experience whenever you decide to undertake risky ventures. Take your time to ask yourself, “Can I risk $100 to gain $1,000 or perhaps $1000 to gain $1,000?”

It is vital for you to fully understand that all people possess varying levels of risk tolerance. This certainly means that there is no such thing as ‘right balance’ in this given issue.

At the same time, risk tolerance can generally be influenced with the exact ‘perception’ of the risk an individual is contemplating to take. This given concept of risk tolerance is then the most accurate when it comes to stock market investing or trading. As you become well conversant with the basics of trading, you will find that the idea of the risks involved in such matters is generally lesser. This includes having an excellent understanding of how to buy and sell stocks, assessing market volatility (price changes). Along with the ease or difficulties of liquidating a stock market investment.

This usually leads to a lessening of the overall anxiety you are bound to experience when you trade or invest in the stock market, due to your ‘perception’ of the risks involved. So, by taking the necessary time to fully understand your exact risk tolerance, you will be able to avoid trading in investments you dread. Ideally, you should not invest in an asset which has the potential to cause you sleepless nights. Anxiety triggers fear that in its turn prompts an emotional response to the stressor. By always retaining a cool head during stock market uncertainty, you will be able to adhere to an ‘unemotional’ decision-making process in your stock market activities.

Make it a habit to keep off your emotions from your investments
By far the largest obstacle quite a large number of beginners have to routinely face is their inability to regulate their emotions and proceed to make logical decisions. In the short term, the prices of company stocks correspond with the combined emotions of the whole investment community. When most stock market investors happen to be anxious about a particular firm, its stock prices will be bound to take a plunge. Alternatively, when most traders possess a positive perspective to a firm, its stock prices will naturally rise.

Those individuals who retain a negative perspective about the stock market are known as ‘bears’. While those that have positive outlooks to the same are known as ‘bulls.’ During market hours, the unceasing struggles between bulls and bears is usually reflected on the constantly fluctuating securities’ prices. These short term fluctuations generally arise from rumors, speculations and in some cases even hope. All of these factors can be rightly labeled as been emotions. Effective stock market investment necessitates a logical and systematic analysis of a company’s assets, management and future prospects.

At this juncture, it is important for you to remember that stock market prices can move in contrast to most expectations. For the inexperienced, this can fuel insecurity and tension. At such moments, you will find yourself faced with a dilemma – “Should you sell your position to prevent a loss?”, “Or should you continue maintaining your position in the hope that the prices will ultimately rebound?” Even in the occasions that prices perform as you expected, you will still find yourself facing troubling questions. “Should you take a profit now prior to the prices falling?”, “Or should you maintain your position as the prices could rise even higher?”

Dealing with all these perplexing thoughts can trigger a lot of worry, particularly if you constantly monitor the prices of the securities you trade in. This emotion can eventually prompt you take certain actions. As your emotions are the main motivation, it is mostly likely your action will be wrong. When you buy a stock, you should only do so with valid reasons. Also, you should have realistic expectations of exactly how the prices will perform if your guiding reasons prove to be accurate. Finally, before investing in any stock, always take time to determine the exact point you will liquidate your holdings, especially if your reasons are proven wrong. All in all, always have an appropriate ‘exit’ strategy prior to purchasing any stock, and make it a point to execute it unemotionally.

Make it your business to comprehensively learn about the basics of stock market investment
Prior to making your very first stock market investment or trade, make sure that you fully understand all the basics of stock markets together with the individual securities which make them up. Below are some of the most pertinent areas you will be obliged to be well conversant with before commencing any stock market activities.

To begin with, take time to understand the exact financial metrics as well as definition that are utilized in stock market trading. Some of the most notable of which are P/E ratio, earnings / share, return on equity and compound annual growth rate. Take you time to fully grasp how these metrics are usually calculated. It is important to state that been in a position of effectively contrasting just how companies use these metrics is essential in any successful stock market investment.

Next you should learn all about the most popular techniques of stock selection and timing. To this end, you should make it a point to understand how fundamental and technical analysis can be executed. More importantly, just how they vary and when it is appropriate to use them in a stock market trading strategy. You should also be well conversant with the different types of stock market orders. Take all the time you require to fully comprehend just how market orders, limit orders, stop market orders, stop limit orders and trailing stop loss orders vary from each other.

Finally, you should make it a point to learn all you can on the different kinds of stock market investment accounts which are made available. You perhaps are well conversant with cash accounts that are arguably the most prevalently used by stock market investors. Nevertheless, what are known as margin accounts are by regulations, required when you wish to make some specific types of stock market trades. So, make sure you fully understand how margin accounts can be calculated. You should also find out about the exact differences between initial and maintenance margin accounts prerequisites.

Make it your business to diversify your stock market investments
The moment you have performed all the necessary research that helps you determine and even quantify risk, making the decision to diversify your stock market portfolio can be a very shrewd step. The same is also the case, when you are totally ‘comfortable’ that you will be able to pinpoint any potential danger which might jeopardize your position in a stress-free manner. In both scenarios, you will be able to liquidate your stock market investments prior to sustaining any dangerous loss.

Therefore, the most prudent means of been able to effectually manage stock market investment risks is to diversify your exposure. You should know that most shrewd stock market investors, make it their business to own stocks from different firms, different sectors and even different nations. The primary driving force which motivates them to do so is the firm guarantee that a single inauspicious event can never influence all their holdings. What all this really boils down to is the undeniable fact that stock diversification can allow to comfortably recover from the loss of a single and even several of your investments.

Investing In The Stock Market Hoping For A Quick Profit

With the Dow Jones breaking record after record, it is very easy to see why the stock market functions as the fast track to financial freedom for many traders. The good news is that you don’t have to be a Wall Street broker or an MBA holder with extensive experience in capital markets to enjoy some of the amazing windfalls Wall Street is capable of producing. You only need to have the right strategy, the right tools, an eye for spotting opportunities, and, most importantly, the emotional make up to know when to dive in and when to let go. Read below to see how you can invest in the stock market for some quick profits.

Defining quick profits

Thanks to the huge amount of stock and options traded in the stock market on a daily basis, it is very possible for even small traders to make quick profits. If you are interested in getting in the market for a quick payday, you have to first define ‘quick profits.’ Your definitions set your expectations, and your expectations determine how you respond to certain events while you’re playing the stock market for quick profits. You have to enter this game with a clear mindset. You can’t be fuzzy-headed or else the wild roller-coaster ride your investments will take might send you to the nuthouse. While many different people would define ‘quick profits’ differently, we could all agree that ‘quick profits’ mean making money from stocks in the shortest time possible. Note that this definition doesn’t define quick profits as involving low risk. The truth is simple: if you want to make lots of money and don’t have much time to make that money, you have to take lots of risk. As the classic Wall Street saying goes, the higher the risk, the higher the return. Quick profits are all about big returns.

The main driver of quick profits: Risk

As mentioned above, if you want quick profits, you have to make risky bets. You simply can’t get the return you’re looking for if you take low-risk bets like government securities. If you want to make quick and substantial profits, you have to take risks. The good news is that there are many different levels of risk you can undertake. Keep reading below to see how you can pick among different risk levels and manage the risks you take with your investment money.

Different stock markets: big boards, over the counter

Most people have heard of the NYSE or NASDAQ. However, these are just the most well-known stock markets. There are other markets which are riskier like the Pink Sheets and OTC:BB markets. These stock markets focus on the risky market for penny stocks. Don’t let the name fool you. If you want to make quick money in a relatively short time, you should investigate penny stocks. They are very risky. Many appreciate quite well but don’t have enough a big enough market of buyers. Sure, your stock has gone up in price, but no one wants to buy the whole lot you’re ready to unload. Also, these smaller stocks are less regulated than equities listed on the big boards. Still, if you want to invest very little and see your investment zoom up in price, penny stocks offer lots of opportunities. They also offer lots of chills and thrills.

Emerging market risk

If you don’t want to play the local Big Board and you don’t want to mess around with penny stocks, you might want to try trading in blue-chip stocks of emerging market economies like Turkey, Brazil, India, and other countries. The great opportunity with emerging markets is that they often rise up when many investors from developed economies would buy up index stocks. By buying non-index or more speculative emerging market stocks, you take on lots of risk. There is an information gap. Often, many of these developing equity markets don’t have transparent rules. Still, the general rise in the broader market can result in huge spikes for lesser-known, but otherwise fundamentally sound, emerging market stocks.

Quick profit strategy: trade on momentum

Want one of these? You can make enough money in the stock market.

If you want to play the Big Boards but you want to take lots of risks so you can snap up some big gains, you can try trading on momentum. You need to pick a stock that has a wide daily range between daily lows and daily highs. Also, the stock has to have a huge daily volume. These two factors ensure that you can get in and out quickly. Track the stock for some time until some news comes out that drives the price lower. Put in a programmed order with your online trading platform to buy the stock once it hits a price that is lower than its current price. Once you’re in, pay attention to its momentum and be ready to click the sell button at a moment’s notice. You’re riding the momentum of the stock. You didn’t buy it to hold on to it forever. Once you reach your target appreciation (measured in percentage points) or there’s some bad news, sell the stock. Alternatively, you can subscribe to a stock charting service and put in a programmed order to sell the stock when it hits a certain resistance level.

Quick profit strategy: use a month to month profit window

While day trading and quick trades make for quick profits, you might have to jump from stock to stock depending on the trends for those particular stocks. Another approach is to stay within a particularly volatile stock but trade it on a month to month window. You buy in at a very low point for the month and you closely watch the stock for a month. You either exit when it spikes up really high during the month or you leave the stock once a month passes This strategy prevents you from hanging on to a stock for too long.

The secret to quick profits: Don’t get emotional and don’t get attached

Regardless of which strategy you choose, the secret to quick profits in the stock market is to never get emotional. Don’t get greedy when everyone is buying. Don’t get too fearful when everyone is dumping. In fact, it pays to be greedy when everyone is afraid and to be fearful when everyone is getting greedy. Finally, you have to make sure you don’t get too attached to your positions. Don’t keep thinking that you only need to hang on to ‘get back’ all the money you’ve lost. Learn to let go and focus on the upside to recoup your investments. Otherwise, you might be waiting for a long time, and your loss might become permanent.

It is possible to make quick profits with the stock market. People do it all the time. Every single day, in fact. The good news is that not all these people work for big banks, investment banks, or hedge funds. Many are regular small investors like you. The key to making quick profits is to have a healthy appetite for risk and having the right strategy.

Investing in the Stock Market

Over the past few years the stock market has made substantial declines. Some short term investors have lost a good bit of money. Many new stock market investors look at this and become very skeptical about getting in now.

If you are considering investing in the stock market it is very important that you understand how the markets work. All of the financial and market data that the newcomer is bombarded with can leave them confused and overwhelmed.

The stock market is an everyday term used to describe a place where stock in companies is bought and sold. Companies issues stock to finance new equipment, buy other companies, expand their business, introduce new products and services, etc. The investors who buy this stock now own a share of the company. If the company does well the price of their stock increases. If the company does not do well the stock price decreases. If the price that you sell your stock for is more than you paid for it, you have made money.

When you buy stock in a company you share in the profits and losses of the company until you sell your stock or the company goes out of business. Studies have shown that long term stock ownership has been one of the best investment strategies for most people.

People buy stocks on a tip from a friend, a phone call from a broker, or a recommendation from a TV analyst. They buy during a strong market. When the market later begins to decline they panic and sell for a loss. This is the typical horror story we hear from people who have no investment strategy.

Before committing your hard earned money to the stock market it will behoove you to consider the risks and benefits of doing so. You must have an investment strategy. This strategy will define what and when to buy and when you will sell it.
History of the Stock Market

Over two hundred years ago private banks began to sell stock to raise money to expand. This was a new way to invest and a way for the rich to get richer. In 1792 twenty four large merchants agreed to form a market known as the New York Stock Exchange (NYSE). They agreed to meet daily on Wall Street and buy and sell stocks.

By the mid-1800s the United States was experiencing rapid growth. Companies began to sell stock to raise money for the expansion necessary to meet the growing demand for their products and services. The people who bought this stock became part owners of the company and shared in the profits or loss of the company.

A new form of investing began to emerge when investors realized that they could sell their stock to others. This is where speculation began to influence an investor’s decision to buy or sell and led the way to large fluctuations in stock prices.

Originally investing in the stock market was confined to the very wealthy. Now stock ownership has found it’s way to all sectors of our society.

What is a Stock?

A stock certificate is a piece of paper declaring that you own a piece of the company. Companies sell stock to finance expansion, hire people, advertise, etc. In general, the sale of stock help companies grow. The people who buy the stock share in the profits or losses of the company.

Trading of stock is generally driven by short term speculation about the company operations, products, services, etc. It is this speculation that influences an investor’s decision to buy or sell and what prices are attractive.

The company raises money through the primary market. This is the Initial Public Offering (IPO). Thereafter the stock is traded in the secondary market (what we call the stock market) when individual investors or traders buy and sell the shares to each other. The company is not involved in any profit or loss from this secondary market.

Technology and the Internet have made the stock market available to the mainstream public. Computers have made investing in the stock market very easy. Market and company news is available almost anywhere in the world. The Internet has brought a vast new group of investors into the stock market and this group continues to grow each year.

Bull Market – Bear Market

Anyone who has been following the stock market or watching TV news is probably familiar with the terms Bull Market and Bear Market. What do they mean?

A bull market is defined by steadily rising prices. The economy is thriving and companies are generally making a profit. Most investors feel that this trend will continue for some time. By contrast a bear market is one where prices are dropping. The economy is probably in a decline and many companies are experiencing difficulties. Now the investors are pessimistic about the future profitability of the stock market. Since investors’ attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.

In a bull market the investor hopes to buy early and hold the stock until it has reached it’s high. Obviously predicting the low and high is impossible. Since most investors are “bullish” they make more money in the rising bull market. They are willing to invest more money as the stock is rising and realize more profit.

Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight. An investment strategy in this case might be short selling. Short selling is selling a stock that you don’t own. You can make arrangements with your broker to do this. You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped. You will profit from the difference in the two prices. Another strategy for a bear market would be buying defensive stocks. These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.

Brokers

Traditionally investors bought and sold stock through large brokerage houses. They made a phone call to their broker who relayed their order to the exchange floor. These brokers also offered their services as stock advisors to people who knew very little about the market. These people relied on their broker to guide them and paid a hefty price in commissions and fees as a result. The advent of the Internet has led to a new class of brokerage houses. These firms provide on-line accounts where you may log in and buy and sell stocks from anywhere you can get an Internet connection. They usually don’t offer any market advice and only provide order execution. The Internet investor can find some good deals as the members of this new breed of electronic brokerage houses compete for your business!

Blue Chip Stocks

Large well established firms who have demonstrated good profitability and growth, dividend payout, and quality products and services are called blue chip stocks. They are usually the leaders of their industry, have been around for a long time, and are considered to be among the safest investments. Blue chip stocks are included in the Dow Jones Industrial Average, an index composed of thirty companies who are leaders in their industry groups. They are very popular among individual and institutional investors. Blue chip stocks attract investors who are interested in consistent dividends and growth as well as stability. They are rarely subject to the price volatility of other stocks and their share prices will normally be higher than other categories of stock. The downside of blue chips is that due to their stability they won’t appreciate as rapidly as compared to smaller up-and-coming stocks.

Penny Stocks

Penny Stocks are very low priced stocks and are very risky. They are usually issued by companies without a long term record of stability or profitability.

The appeal of penny stock is their low price. Though the odds are against it, if the company can get into a growth trend the share price can jump very rapidly. They are usually favored by the speculative investor.

Income Stocks

Income Stocks are stock that normally pay higher than average dividends. They are well established companies like utilities or telephone companies. Income stocks are popular with the investor who wants to own the stock for a long time and collect the dividends and who is not so interested in a gain in share price.

Value Stocks

Sometimes a company’s earnings and growth potential indicate that it’s share price should be higher than it is currently trading at. These stock are said to be Value Stocks. For the most part, the market and investors have ignored them. The investor who buys a value stock hopes that the market will soon realize what a bargain it is and begin to buy. This would drive up the share price.

Defensive Stocks

Defensive Stocks are issued by companies in industries that have demonstrated good performance in bad markets. Food and utility companies are defensive stocks.

Market Timing

One of the most well known market quotes is: “Buy Low – Sell High”. To be consistently successful in the stock market one needs strategy, discipline, knowledge, and tools. We need to understand our strategy and stick with it. This will prevent us from being distracted by emotion, panic, or greed.

One of the most prominent investing strategies used by “investment pros” is Market Timing. This is the attempt to predict future prices from past market performance. Forecasting stock prices has been a problem for as long as people have been trading stocks. The time to buy or sell a stock is based on a number of economic indicators derived from company analysis, stock charts, and various complex mathematical and computer based algorithms.

How Much Does It Cost To Invest In The Stock Market?

The answer to “how much does it cost to invest in the stock market?” depends on a number of factors including but not limited to the kind of investor you are, the type of stock you buy and the company you choose to invest in. The stock market is risky business because the probability of you losing money is high. That is the reason why you need to understand the fundamentals of the business before you invest. Before you can determine the cost of investing in the stock market, you will have to understand how it works.

What Is the Stock Market?

Stock market is the buying and selling of stock (shares) of a company. The shares are securities that are listed on the stock exchange. Once you buy the stocks of a company you automatically become a shareholder in the company. You will earn from the stock you bought in two ways; first through the dividends that are paid by the company to the shareholders. The second way you earn money is through the appreciation of the company. Depending on the type of stocks you bought, the dividends are usually calculated on a fixed rate or variable rate.

The Different Types Of Stocks Can Affect How Much It Costs

When it comes to calculating how much it costs to invest in the stock market, you will have to determine the type of stocks you are buying. There are different types of stocks and they all have different market value.

Common Stocks; These are securities that represent ownership of a company. Once you buy these stocks you will have a right to vote at any shareholder meeting. The common stock shareholders however, are usually at the bottom of the priority ladder. This means if the corporation goes bankrupt, the common shareholders will only receive their money after the creditors and the preferred shareholders. In terms of cost these stocks have a less yield.
Preferred Stocks; These stocks give you a little ownership of the company but you don’t get any voting rights. The preferred stock shareholders usually receive dividends that are calculated on a fixed rate. The preferred stocks have a higher yield per stock as compared to the common stocks.
Penny Stocks; these are usually referred to as common stocks of the small public companies. The penny stocks are usually priced at $5 and below.
Factors That Affect Stock Prices

The price of a stock influences how much it will cost to invest in the stock market. It is thus important to understand the factors that affect the stock prices.

Company Performance

This is the major factor that influences the stock prices. The company performance, refers to the company earnings, both current and future earnings. The performance of the company may be affected by factors like employees’ layoff, change in company management, a new service or product, scandals and many more. These internal factors directly influence the price of a stock.

Inflation And Deflation

Both of these factors directly affect the stock market. Inflation is where the prices of goods and services rapidly go up. This causes the cost of manufacturing and transporting of goods to go up. In an event of inflation, the stock market drops due to the decrease in revenue. Deflation on the other hand is usually the drop in the prices of goods and services. While deflation is supposed to be a good relief, most investors don’t invest in the stock market. This is because they believe that the economy is weak. This causes the stock market to drop.

Interest Rates And Foreign Markets

The interest rates that are imposed on a company while borrowing money from the financial institutions usually affect the prices of the stocks. Higher interest rates usually affect the company borrowing which will in turn reduce their profits and dividends. Foreign markets on the other hand affect the stock prices indirectly. When the economic status of the countries goes down, it affects the stock market negatively. Once the economic status changes, it influences how the foreign countries will trade with the said countries. This will in turn affect the stock market of the foreign countries.

Tips Of Determining the Cost Of Investing In the Stock Market

Time to invest; when it comes to the cost of investing in stock market, it is not only money that matters. The time you invest in financial market is also important. You need to determine the amount of time that you are willing to invest in the stock market.

The number of shares you are willing to buy; the number of shares that you are going to buy will determine the total amount of money you will use. If you are new to the business is advisable you buy a few stocks as you learn about the business. Also remember not to buy all your stocks from one company, diversification is very important.

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.