Beyond Origins the Discussion

Profit Off Of Growth With Investing Ideas In The Markets

August 29th, 2008

The value of a stock can change at any moment, depending on market conditions and investor sentiment at the time. It’s important to understand that a stock doesn’t have a fixed price, but shifts depending on speculation and demand. When investors are making bids for the stock hand over fist because they believe it will make for a good investment, the stock price will typically increase. Likewise, if people think that the outlook is poor and rush to sell or short the stock in question, you will find the value falling. The price is only one measure of a stocks true value.

Return on investment is one of the most objective metrics of the value of a stock. Referring to the amount you earn back in profit for every dollar that you invest[/stock], it is something toward which you can [spin]speculate on the potential for a profit in the long term based on the past history of solid growth.

Individual stock market picks and investing ideas should follow with some risk in betting with the odds. Investing involves taking some risks with your money, but it is not like betting on horses. A long shot can always win, even if every other investor in the world is betting on that same winner (larger market capitalization). The direction of money influences the outcome in the stock market. If a lot of investors are buying X, than X’s stock price will go up. The shares of X become more valuable because more investors want it. Likewise, the reverse is true, so it is important to keep watch for the profit problem that exists.

You can make money with stocks by selling your shares for more than you paid for them or by collecting dividends, or both! The profit that you will make on the sale of stock is known as a capital gain. Naturally, you don’t get to keep 100% of your profits. The tax man will collect taxes on gains as well as a commission on the sale; however, if you’ve owned the company for at least a year it is considered a long-term gain… this means a lower tax rate on your return. What does this equate to? That’s right. More cash in your pocket!

Dividends are the portion of a company’s profit that are paid out to the shareholders. A company’s board of directors decides how large a dividend the company will pay, or whether it will pay one at all. While smart investing ideas in and of themselves, qualifying stock dividends are also taxed at your long-term capital gains rate.

Program trading, which refers to the process of buying/selling a “basket,” or group, of 15 or more stocks with a combined worth of more than $15 million, or all of the companies that comprise an index, can cause abrupt price changes in stock or a group of stocks… potentially even in the entire market! Some program trades are automatically fired off every time a limit order hits the target price that have been set to limit losses. And, the traders may even initiate programmed buys to profit from large spreads they detect between offers to buy and prices asked by sellers. In order to control potentially serious consequences, exchanges have instituted restrictions, called circuit breakers, to stop trading activity altogether in the event that the market collapsed. This essentially limits panic selling, such as that which happened during the Great Depression.

Now that you have heard about the buying and selling of stocks, as well as the forces that move the markets, you can start making money in the markets as an investor. Keep in mind that while big funds may move the markets, as an individual investor you have the ability to sneak in and out of insane gains.

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