Invest in the Stock Market: Tips for Stock Investors
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Now you have a good understanding of stocks and the stock market. It's time to learn how to invest and make money.
Buying Stocks
There are two main ways to invest in stocks: buy them using a brokerage, and buy them using DRIPS and DIPS.
Brokerages buy and sell stocks on behalf of other persons or entities. There are two types of brokerages. The first one is the full-service brokerage, which offers expert advice and account management. Of course, this kind of first-class service comes at a high price. Famous full-service brokerages include Merrill Lynch & Co. Inc., JP Morgan, and Bache & Co.
An alternative is the discount brokerage, which is decidedly cheaper but offers less customer care/support. In older days, only the wealthy investors could afford the services of a broker. Today, online discount brokerages make it easier for individual, small-time investors to participate in the stock market. Examples of online discount brokerages are ShareBuilder and Buy and Hold.
A good tip for investors seeking to buy through a broker: buy round lots (100 shares), rather than odd lots or those not divided evenly by 100. Buying round lots are usually cheaper.
If you don't want to use a brokerage, the company whose stock you're interested in might present the solution. Some companies offer DRIPS (dividend reinvestment plans) and DIPS (direct investment plans) to prospective shareholders; these plans allow the investor to directly buy stocks from the company.
Which stocks to buy?
Through time and market experience, individual stock investors have found ways and techniques that help them decide which stocks to invest in. These approaches differ from trader to trader, and methods that work well for one person might not work for another. If you're starting in the stock investing game, there are three factors you should look into: price/earning ratio, yearly high and yearly low, and yield.
The price/earning ratio is a relationship between a stock's price per share and the company's earnings on a per share basis. You can compare companies' price/earnings ratios in order to weigh which stocks you're going to buy. For example, if Company A's ratio is higher than Company B's, one can say that A's stocks are overpriced compared to B's, or that B's stocks are undervalued compared to A's.
Use the yearly high and yearly low prices of stocks to compare current stock prices to these two statistics and provide you with a sense of where the stock is going.
The yield is only relevant to companies that pay out dividends to their shareholders. The yield is a percentage that relates the dividends paid to the stock price (yield = dividend / stock price). Generally, a stock with a higher yield is a good choice.
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