Everyone is looking for a way to bank extra income nowadays and I’m sure reading about how the Dow has been rallying over the past month has you considering becoming the next independent stock jockey. Central bankers, including the Federal Reserve, have been fueling the 2013 market rally by buying up government bonds to push down interest rates and entice investors to purchase stocks.
So how do you take advantage of all the Wall Street hype?
Being an amateur investor or trader in the stock market is very tricky and risky if you just jump in not knowing what you’re doing. Trading stocks could be compared to many as gambling especially to those who don’t know how to invest, but it is actually a game of skill, not chance. The only similarities to keep in mind are the fact that trading stocks can become very addicting and, like gambling, you can easily let emotions influence you to make impulse decisions. One of the most common emotions that come into play that you need to be cognizant of is greed. Greed in all forms is dangerous, but as Gordon Gekko would say, “Greed is good.” This game of greed is all about taking intelligent risks and doing your due diligence.
Here are the steps to get you on your way to becoming the next stock market prodigy:
First, find an online brokerage firm. Some we recommend are Etrade, TD Scottrade and Options Express. When choosing the right brokerage firm things to look for are: how much commission they charge per trade, their minimum opening deposit and what are their online platform benefits. Once you have your account opened, then it is time to start researching stocks and nailing down your investment strategy.
The first place I go to when researching stocks is www.finance.yahoo.com. This is where you can pull up any public company’s full profile with the research criteria you need. There are four main variables to consider when researching a stock: fundamentals, technicals, news and sector. You need to pinpoint what exactly the catalyst is for a stock to make gains.
Sectors are always important to research because you want to find a sector that is growing exponentially and is a new boon trend. Researching sectors could actually be fun and a learning experience because you are constantly researching new innovative industries. Sometimes if you catch a new, undiscovered, hot trend before the hype, it alone can be the catalyst to a stock breaking out. Each one of the variables mentioned are important, but I believe the most important is fundamentals.
Learn how to dissect a company’s financials by looking into its income statement, balance sheet, cash flow, market cap, etc. Is the company profitable? Low debt? Strong cash position? Low P/E? How is the share structure? These are just some of the questions to look into when researching the company’s fundamentals.
The goal is to make sure the company is completely undervalued compared to its competitors and growing. You will also need to analyze the chart and technical indicators, which you can find help with at websites like www.bigcharts.com, www.stockta.com, and www.barchart.com. Last, make sure to look into the company’s corporate website to research its historical press releases looking for consistent shareholder communication with strong news flow.
A secret that most investors don’t look into is a company’s filings, which can be found at www.sec.gov. This is where you can read a company’s annual financial report also known as its10K or its quarterly financials, commonly called its 10Q. In these filings, you can sometimes find hidden catalysts or facts about a company that weren’t made public through a press release yet.
Once you go through all of these variables, you should be able to determine if the company is something worth investing into… sh*t maybe it’ll even pay you a dividend depending if it’s a micro cap or large cap stock. To add protection, ask your broker how to use a stop-loss to protect you from any unexpected drops lower than what you are willing to lose.
Whether you win or lose always remember to gain experience from each and every trade because the only way to become a better investor is by having the balls to take a shot, an educated shot of course. Buy low, sell high…simple as that.
Donnie Azoff | Elite.