Making money in the Stock Market Five Simple Steps

Investing in the Stock Market is a very serious activity. As we learned in the University, Profits are directly related to Risks. The more risks you take the more profit you expect. The key words are “take” and “expect”. The risks you take for granted since you invest your money to start with the Stock Market, while you expect to make a profit, profits are not for granted.

I do not try to disappoint anyone in investing the Stock Market, however, it is good to know before hand the strategies and the risks involved in such an activity.

The first thing to know for the Stock Market is that to make a profit someone has to buy and sell stocks. It is as simple as that. However profits comes when you buy cheap and you sell expensive. If you buy expensive and you sell cheap, then you lose money.

The key to the above is when you buy and when you sell. We all know that there periods that the stock prices are rising and there are periods that stock prices are falling. Obviously we should buy when prices are falling and we should sell when prices are rising. Yes but how we can identify the correct timing when to buy and when to sell??

I will try to explain the strategies of a successful Stock Market Investor in the following lines.

Before you buy stocks you should investigate which stocks are you going to buy. This is obvious but also incorporates a lot of homework.

First step: you write down a list of sectors that you want to invest. Will it be electronics, the automotive industry, food and beverages, high technology, real estate development, you name it. To make this list, you need to know which of the above sectors have a potential to grow in the next few years. To receive this knowledge you should read related books, magazines and newspapers and discuss with people who are in each industry. Based on the information you will gather, you will have a feeling of what sectors you should list. Alternatively you go to a professional stock broker and you discuss with him. If he/she is good and honest will guide you. Still you have to verify the information you will get and make up your own mind.

Second step: you make a list of companies from each sector you have chosen, and you start reading about these companies. Again you need books, magazines, the internet and people from the industry. You will end up with a short list of companies that they look interesting for investing. From the information you have already, these companies may have a strong background in their business, they may have new ideas that they are working on with a great potential, or they have an interesting growth and investment plan domestic or abroad.

Third step: you do the fundamental analysis on the chosen companies. This is a lot of homework. You have to study their balance sheets, their stock behavior, and every information on their past performance and future plans. You have to look at their management team and their business background of each one of them, their success stories and their faults. You will probably need the assistance of a qualified accountant, to help you through the balance sheets, cash flow reports and sales and profits reports as well as their investment policy as it is shown on their balance sheets. Be careful though, any good past performance does not guarantee future good performance. After all this homework you are down to a very short list of companies on each chosen sector that you decide to invest on.

Fourth step: you perform the technical analysis on each stock. Technical analysis is a tool that will give you a good guess when is the proper time to buy a stock, (or to sell a stock latter), based on historical information on this particular stock. If you are not able to learn how to use this tool yourself, again you should seek advice form a professional.

Fifth Step: you actually buy the stocks. Simple? Not quite, since now you should care when to sell the stocks and accumulate your profits, or loses. But now you are an investor in the stock market. You read the newspapers and magazines on a daily basis, you surf in the net, and you discuss with your stock broker.

I may add that seriously investing in the stock market is a full time job.

One of the most important things you should know is how often you will buy and sell your stocks. There are long term investors, who invest on a company for several years,and there are day traders who buy and sell their stocks on a daily basis. In between you find all kind of short term and long term investment policies. Warren Buffet succeeded as a long term investor, while George Soros as a short term investor. Both of them worked very hard to achieve the results we all know about.

Authors background: Besides what it is written in my profile, I would add that I have a University Diploma from Aristotle University of Thessaloniki in Business Administration and I served as a Chairman and CEO in several companies for the past 37 years. There are periods of time that I personally invested in the stock market, and I cashed the profits to buy my Yachts and Airplanes I refer to in my other articles. However it is always a matter of personal choice where you will invest your time, which is limited and has an expiration date.