Whenever I met friends or meeting new friends and when we talk about stock market, most of them have the impression that stock market is high risk investment and more to a gambling. Well, my answer is yes or no. Basically, we are gambling in the whole of our life because no one knows what exactly what will happen in the future. When you started a job in the new company, you taking the risk whether or not you can perform and maintain your jobs, even when you are married to someone is a gambling too, you are taking the risk of sharing with someone. Thats precisely why we need LUCK in our life (PS : I am lucky sharing with someone which has more things that he have shared with me rather than mine, that why I shifted the risk to stock market ha ha..)
Well, Jokes aside, I decided to write this article to share with friends and anyone who want to know about investing in the stock market. Anyone interested to know more, might be want to be my follower in this website. I like seeking alpha as this website is completely free and many contributors share their valuables views for the investing idea and information that they have gathered, even a free stock analysis. But ones should have basic knowledge and making their own judgment in picking which stock to buy. It is your money, so only you really care for your money, no one else does.
First to remember that there is seller and buyer in the market in whatever market situation, therefore it is norm that if there is a difference views from the contributors. The prices will decline if there is more seller and the prices will advance when there is more buyer. Does it sound simple to understand ?
When you started a business and put in the capital, you are actually taking a higher risk as you do not know whether or not your business will be successful. It is the same, when you are investing in stock market, you are taking the risk to invest in a company that own by many but no one know what exactly what will happen in the future. Not even the financial analyst nor the owner of the company.
BUT the difference is, in the stock market you have a choice to invest in a proven successful company with limited amount of money rather than trying to acquire the company or start up similar company. Imagine how much money you would need to build your own company like Microsoft Corporation (NASDAQ:MSFT) or APPLE Incorporation (NASDAQ:AAPL). You can invest in MSFT or AAPL with merely less than $1,000 from the stock market.
Still, there is risk for investing in such company as you will not know for sure whether or not that company will keep on growing and continue successful.
Another difference, that I have to highlight that the value of the company is subject to negotiation in the market just like when you are negotiating to buy your merchandise for your business for resale which subject to competition.
The sellers is driven by negative news and bleak future expectation and the extend of the forces is limited by the buyers who is driven by positive future expectation and in between of that there is speculators who are trying to take advantage of the situation to get rich faster. Please do not be so negative about speculators, the market need this species to be liquid. Some of them can be very good speculators and really successful but this speculator that make the overprice stocks and under priced stocks. I like what Warren buffet told the financial reportor in one interview "Be fearful when others are greedy and be greedy when others are fearful". I like Warren Buffet and his thought, but to be frank if every market participants are like Warren buffet, the stock broker will have to close their business. Anyway, it is not easy to practice what he said especially when you do not know what to buy, when to buy and when to sell.
Before I started sharing this simple strategy, I would recommend for those who like to start in stocks with the money that you are not going to spend very soon like your IRA account or your life saving that you do not need it in the next few years.
STEP 1 - Buying stocks
To me, this is the most difficult decision. When picking which stock to buy, you need to base on fundamental of the company. There are few ways on how to evaluate the company and analyses the company statement. It is impossible for me to illustrate that in this article because it took me 2 painful year to complete my Graduate diploma in applied finance and Investment to obtain that knowledge. But we are lucky that the broker here in the US especially are so generous (Thanks to the competitions), they provide all the research and analysis for the stocks and even the target price of the analysts.
To keep it simple, buy stock that below the Analyst target price and sell it when it go over it. For instance, for Microsoft the analyst target is $37 and the current price is ranging between $28 - $28.3. Intel Corp (NASDAQ:INTC) Analyst target price is $26 and the current price is $21.95. Apache Corporation (NYSE:APA) Analyst target price $116, current price only $82.32. (*Current price is based on the day when this article were published 10/26/2012 )
But, please beware that Analyst do revise their price target based on new development and basically you will not know when they are going to revise it down and revise it up. For many cases, the prices declining or advances first before the analyst revise it and the day when they really announced it will be another action in the and if the market has factored in the revision the prices will reverse.
In order to mitigate this problems, it is better to have an understanding of the technical Analysis. The following is the technical Analysis, I will start with the technical Indicator that easy to understand such as :
- Slow stochastic oscillators or SS, With this indicator you would be able to guess whether or not the particular stocks is over sold or over bought. You want to buy or enter the stock below the most recent analyst target and when the stock is oversold. that is the ideal entrance. but you might want to restrict yourself to buy the stock when it is in the over bought territory. Because the correction can take a long time than you expect and might shaking your faith in that stock and cut lost.
- RSI is a trend indicator, means that it tell you whether or not the current trend will continue or it is currently in troubled or whether or not the current pullback/advances is almost done or will continue. I use this to compliment the SSD Indicator.
There are more than 2 indicator usually available in your broker platform. I believe all broker in US giving this tools for free if they don't perhaps you should look for another broker that provide those tools.
I will post the SSD and RSI guidelines complete with the chart in my next posting to my instablog........ See you again next time