How to make money in the stock market

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How to make money in the stock market
Make money in the stock market (Ryan McVay/Photodisc/Getty Images)

Making money requires work - even in the stock market. Most successful investors study a variety of sources and ask a lot of questions.

Skill level:
Moderately Challenging

Things you need

  • Brokerage accounts

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  1. 1

    Shop for undervalued companies.

  2. 2

    Find stocks that have price-earnings ratios significantly lower than those of their peer group.

  3. 3

    Watch for bad news. Wall Street often overreacts to bad news such as missed earnings, which will drive a stock lower than it should go.

  4. 4

    Pick the jockey, not the horse. Find out who is running the company and where the executives worked previously.

  5. 5

    Look for strong balance sheets. Companies with low debt loads, positive cash flow and consistently good earnings are good prospects.

  6. 6

    Check out the portfolios of successful mutual-fund companies. If they are getting great returns year after year, they are holding stocks you might want to buy.

  7. 7

    Know when to cut your losses. You want to invest for the long term, but you don't want to stick with a consistent loser.

  8. 8

    Work hard. Do research. Read financial news. Study quarterly and annual reports as well as registration statements, looking for trends and opportunities.

  9. 9

    Grill your broker. If the broker is recommending XYZ stock, ask for a detailed explanation, with an eye to growth prospects and historical performance.

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