My financial professors at San Francisco State are always preaching to buy stocks low and sell them high. The million dollar question is when exactly is the stock at it's lowest point. We simply do not want to buy a stock at a low price if its going to drop even lower in the future. Timing is truly everything when it comes to investing. Ideally, finding out when a stock hits it's lowest point and investing at that time is what's going to make you fast easy money. However, as long as your invested stock's price increases, you've made a profit.
So is today the time to buy? The first place to find this answer would be to check out the U.S markets. The two largest U.S stock markets are the NASDAQ and New York Stock Exchange. These markets have indexes such as the S&P 500 and the Dow Jones Industrial Average that represent a group of stocks to indicate the current status of the overall markets. Keep in mind that the DJIA is composed of 30 large capital companies and the S&P 500 is composed of 500. Therefore, If you're deciding to invest you're money in large capital companies then the S&P 500 is a better indicator because of it's larger distribution of companies. There are also index's made up of small and medium capital companies. The S&P 400 is made up of mid cap companies and the S&P 600 is made up of small cap companies. Observing the historic ups and downs of each index can help you understand the current status of the market and perhaps help you decide what type of company you should invest in. As a general rule large cap companies tend to be less volatile, so if you are looking for less risky investments these would be the right selection. Keep in mind however, the less risky the stock the smaller the return. Mid cap companies will offer higher risk premiums than large cap companies. Therefore, small cap companies will offer higher risk premiums than mid cap companies..
Understanding the index fluctuations of the past will help you predict the fluctuations of the future. Drawing conclusions as to why the market decreased or increased at certain times(see graph above) will help you understand what might influence the index in the future. Therefore, when listening to current news you may be able to correlate what will effect the market, which will help you decide when it is a good time to buy or sell. Financial analysts preach all day long about their views on the current market, which can help you make smart investment decisions. Check out the video on financial analyst Jim Cramer who explains his animated perspective on what to invest in today.
I think that the idea of investing in stock is kind of like gambling because you never really know how the market is (unless you look into it for a very long period of time). For me, never really understood the idea of stock markets. Let's say for example... you invest into Apple, and if a certain their stock was at first initially high and then becomes extremely low, then would that be a good stock to invest to?
ReplyDeleteI really want to invest in some stock eventually but as you mention I want to make sure I get as much money as possible when it comes to selling it. There are so many things that are constantly changing as far as trends and what people need that it is hard to settle on one company. There are always those obvious companies like Apple that is constantly coming out with new products. Yet, I figured since it is so widely known you probably will not make that much profit. So is the key to find companies that are up and coming and hope they do something major to make a huge profit?
ReplyDeleteNadia, after deciding which company to invest your money into you will then buy some of its stock. Once you have purchased the stock you hope that the price continues to go up in. If you later decide that the company's success seems to be diminishing you should sell the stock. You mention the company Apple. Apple stock price a few months ago was selling at $700 a share. Today, it’s selling somewhere around $535. If you think that the stock price will go back up to $700 a share, then yes today is a great time to buy.
ReplyDeleteAnjelia, I was exactly in your predicament 4 months ago. Doing research on the companies yourself can help you decide which to invest in. Also, listening to stock market experts like Jim Cramer can advise you which ones to invest in. Apple is actually been a very volatile stock lately, as I mentioned above. However, you have the right idea behind investing in companies that know body knows are great yet. It's important to remember that these companies can also lose you a bunch of money too. High risk comes with high reward.