Investing in stocks or trading Forex can build your future in any direction in which you choose to go. Many investors have different ideas on how to truly get started, but the one piece of advice you should listen to is, learn all you can about the market.
Start out small and build your portfolio as you learn about stocks and the Forex market, and how to play the market to your advantage. You can start with as little as a few hundred dollars.
First of all, learn to put away some money each month. It can be as little as $10 a week. Put it in a shoebox or the bank, but do it faithfully each week. At the end of the year that would add up to $520 for the year which might be enough to start trading at a professional online discount brokerage.
You need to set your goals and learn what your risk tolerance is for the market. Know why you want to invest. Is it for retirement, a new home, or financial stability?
Analyze … and Then Analyze Some More!
Investing is just putting your money to work for you. It is not gambling. You will learn how to watch a stock and follow the trends of the market. Picking stocks to watch based on a certain set of criteria will be your first lesson. Your aim will be to pick stocks that will give you a greater return than the average stock on the market. This is especially important when trading with low capital.
There is no sure fire set of rules to follow for picking stocks to guarantee that the stock will go up. With knowledge and watching the stocks you like, you can see patterns of ups and downs for any stock. When you become a good stock picker, your wealth with grow.
Learning the fundamental analysis of a company is a good beginning. The whole theory is to learn as much about the company and how the stock is trading on the market. Intrinsic value of a company?s stock is what you or analysis think the stock is worth and not what it is selling for on the market.
If the stock is trading at a lower price than what the intrinsic value of the stock is, then it is a buy signal. The basis theory of intrinsic value is simple, it is the company?s revenue minus expenses. The value of the company is, what the company?s worth is, after all expenses, salaries and reinvestments.
Many investors do not look at the discounted cash flows to trade. Investors also work on what is called a technical analysis to help them find the trend of any given stock. Stocks all have charts that can be followed to see their ups and downs of the trading prices. These charts are followed by the technical analysis as well as those individuals who are trading with online brokers.
Fundamental trading is mostly thought of as long-term strategies and technical trading is thought of as short-term trading strategies.
Value Investing vs Growth Investing
One of the oldest and best known stock-picking strategies is the value investing method.
Value investing is finding companies that are trading well below their intrinsic worth. Investors would look for strong earning and fundamentals, book value, cash flow and earnings of the companies they are interested in buying.
These stocks usually are selling at a lower price than what their quality shows them to be trading. These are called undervalued stocks and have a great potential of moving upwards in their trading price.
Valued stocks are not to be confused with junk stocks. Junk stocks are stocks that have lost their value in trading. These stocks might have been trading at $20 at one time, but are now only trading at $5 on the market. The company may be having fundamental problems and the price of the stock must be compared to the intrinsic value and not the historic prices.
Growth investors look for the future trading price of a stock. These investors are not as concerned with today?s market trading price.
Growth investors are trading stocks of companies that are valued higher than their intrinsic worth. These investors strongly believe that the company will exceed their current values and their intrinsic worth will grow. Usually young or new companies are looked at for growth. These companies will grow faster than others and therefore grow in value. Their earnings and revenues will grow bringing the trading price of the stock upwards. Growth companies gain their profits through capital gains and usually do not pay out dividends. They reinvest their earnings.
Price/Earnings Ratio Matters
New investors should also learn about the price/earnings to growth about the stocks in which they are interested in investing. This ratio will give the investor a bigger picture of the valuation of their stock and is more in depth than just the price-earnings ratio. Past Earnings are compared by knowing the P/E ratio over a given time. Usually a 12 month period is used.
One of the largest factors that determines the growth and earnings of a company is the rate in which the company is growing. This growth will also have a lot to do with the intrinsic value of the company.
Learning the stock market can be fun and extremely interesting as you learn all the ways to make money. New investors should not invest with money they cannot afford to lose.
Invest wisely, learn all you can and build your future in the market. Start out by investing on paper first until you learn the volatility of the market and what stocks you have picked that came out to be winners.