How to make money in the stock market

Written by ehow contributor | 13/05/2017
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.

Shop for undervalued companies.

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

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.

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

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

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.

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.

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

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

Tip

Go online. Dozens of Web sites offer financial news, advice and analysis. Use a discount broker, not a full-service broker, if you know what you are doing and you have time to execute your own trades. Check out freeedgar.com, which offers registration statements, quarterly and annual reports, and other SEC documents online - all for free. Take advantage of the employee stock ownership program at your place of work, if your employer offers one. You can buy your company's stock at a discount.

Warning

Full-service brokers make money on activity, not on the quality of their trades, so don't assume your broker is always working in your best interests.

Things you need

  • Brokerage accounts

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