e-book The Stock Market Explained: Your Guide to Successful Investing

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A simplified look at a successful investment is one where an investor buys a company at X amount of dollars, holds on to the company for an extended period of time until its value has grown to the point that they feel comfortable selling it, and then sells it for a profit. If the company offers dividends, they may also accumulate profits along the way without having to sell any of their shares.

Figuring out how to invest in stocks starts with learning the fundamentals of investing. Once you are comfortable with how investing works, the next step is to choose the companies you wish to buy. This is the step that can make or break you as an investor, and we will cover later how you can go about choosing companies that will bring you success. After you have found a company you would like to invest in, buying shares in that company will require you to go through a broker.

Brokers enable you to easily buy and sell shares in any public company, but they do charge a fee for their services.

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Once you are working with a broker, though, buying shares of a company is as simple as ordering something out of a catalog or making a purchase on Amazon. Simply choose the stock you want to buy, the number of shares you want to buy, and complete your purchase. One great option that has come available in recent years is online brokers. For beginner investors, online brokers are perfect since brokerage fees can often eat up any profits that would otherwise be made unless you are investing large amounts of money. There are two fundamental keys for beginner investors: investing for the long-term and investing in companies that have meaning to you personally.

Knowing when to buy and sell in the short-term requires much more research, knowledge, and, more often than not, a little bit of luck. With long-term investing, all you have to do is choose a great company at a reasonable price and allow it to increase in value over time — the potential for costly errors is greatly diminished the longer your investing horizon is.

This process can be used on any company in any industry and is extremely helpful for finding companies that have a high probability of growing in value over time.

How investing can grow your wealth

If a company has meaning to you — if you are inspired by and interested in what they do — you are going to be more likely to understand that company, more motivated to research them, and thus more likely to make wise decisions about when they should be bought and sold.

In the end, meaning is often the factor that differentiates between truly investing in a company with confidence and simply gambling on whether or not they will grow in value. Any company you invest in needs to have a moat. That is, they need to have something that prevents their competition from coming in and stealing away the control they have over their market. For example, Coca-Cola is a company with a great moat.

Anyone can make soft drinks, but Coca-Cola has entrenched itself in the market. No new soft drink company is going to be stealing away their customers anytime soon. But many were left nursing severe loses when the bubble eventually burst. Find out more about investing for growth. While growth investors opt for fashionable companies, value investors do the opposite, they seek out bargains others have missed.

Step-by-Step Beginner's Guide to Trading Penny Stocks

They look for firms that are trading at a discount to their true value. Value investors stand to gain if other investors decide that they overlooked a bargain and bid up the price. The problem is that shares are often cheap for good reason. The company might be going through financial difficulties, or losing market share to a rival.

The Stock Market Explained: Your Guide to Successful Investing by Alvin Hall

Find out more about how to spot a long term winner. While value investors seek out gems the crowd has overlooked, momentum investors are the crowd.

They buy stocks that have already gone up on the assumption that they can keep doing so. It can be a highly successful strategy. Trends or fashions, no matter how unjustified they seem, can keep going for far longer than you might expect. Sometimes sectors or markets can keep rising for years. The risk, of course, is that fashions can abruptly change, and in such a scenario, momentum investors can be left exposed to the full force of a market correction.

Being contrarian involves going against the consensus. In the mids, some contrarian investors thought stock markets were too expensive and due for a fall. Markets were historically overpriced, but they just kept going up. Being contrarian for its own sake is no use.

This guide will help you to...

Sometimes when people talk about being contrarian, they actually mean value investing. Income investors tend to focus on dividend paying shares — firms that distribute their profits to their shareholders rather than retaining it within the company. Dividends typically come from large, mature firms in industries that are no longer rapidly expanding.

As high dividend yields can be a sign that a stock is undervalued, income investing is often deemed a form of value investing.

Even then, following one of these strategies is no guarantee of success. It boils down to save a lot and buy low-cost index funds. Now, I should admit here that this recommendation is a little devious, because these two books disagree on a pretty fundamental point. Frustratingly, both books make powerful cases. But learning to wrestle with ambiguity and uncertainty is good mental training for owning stocks, which is never going to be a comfortable experience.

Taken together, their insights can help you craft a smarter, safer financial plan. Malkiel is an emeritus professor at Princeton, but his book, first published in , is not an academic tome.

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Along the way, however, he popularizes some big, hairy ideas. Why not? The other way Malkiel is instructive is a little paradoxical: By showing how hard it is for anyone to get a trading edge, he also shows that anyone can invest and do reasonably well—just by buying an index fund.


How to Start Investing in Stocks: A Beginner's Guide

If the market is efficient, you might reason, who am I to fret when prices keep climbing higher? Still, the inherent wisdom of financial crowds is a beguiling idea that deserves a strong counter-narrative. Shiller, who won a Nobel Prize for economics in , devotes a chapter of Irrational Exuberance to dismantling the orthodox versions of efficient-market theory and random walks.