Wealth Stock Market Questions

[Lucky]

Hey guys I'm a beginner to shares and business so i just wanted to ask a couple of questions
1 For a guy who's starting off what shares happen to hold promise for profit?
2 What do you think a guy should do if he had let's say 500 dollars and wanted to put it in shares what would be your plan of action?
3 Are Shares really that profitable in the end?

 

[pks391]

Hey guys I'm a beginner to shares and business so i just wanted to ask a couple of questions
1 For a guy who's starting off what shares happen to hold promise for profit?
2 What do you think a guy should do if he had let's say 500 dollars and wanted to put it in shares what would be your plan of action?
3 Are Shares really that profitable in the end?

1 For a guy who's starting off what shares happen to hold promise for profit?
Depends on many things. I do not know how the situation is at NASDAQ but shares can be incredibly rewarding or incredibly loss-making. You would have to have some knowledge regarding market situations, trend analysis and fundamental analysis. You would also need to have knowledge on how to read and analyse the financial statements of companies and financial ratios. The amount of profit you earn depends on the amount of capital you invest. The more capital you invest, the larger the amount of returns you potentially may earn BUT it depends on a whole plethora of factors as to whether the market value of the shares increase or decrease during your time of holding. I could go on and on about them, but you need to do some research and observe someone experienced before you try to tart trading on your own It also depends on whether you wanna trade in pure equity shares or market derivatives(Futures and Options)

2 What do you think a guy should do if he had let's say 500 dollars and wanted to put it in shares what would be your plan of action?
I am starting out on shares myself. But, at the same time I am also studying for my Chartered Accountants degree. So according to me, i would start off by investing in shares with a higher than average dividend yield ratio. I would also put some money into blue chip companies for long term returns. I do not know about the American situation, but in my country, the Long Term Gain on shares is tax free. (More than 1 year holding)The important part is to keep a diversified portfolio. Dont put all your eggs into one basket. Always do your research on the company you invest in. Some shares are very volatile and may cause huge losses in the short run. Buy low and sell high.

3 Are Shares really that profitable in the end?
Depends, its really a make or break situation sometimes. Shares are basically high risk-high return. You could make a fortune in the share market only to lose it the next day when the market crashes. But shares of a stable company are far more profitable to the investor than if he had invested in say, a fixed deposit in the long run. People have purchased shares of Rs 100 many years ago and now the value of those shares are Rs. 1000-1500. Short term, huge capital investment can make huge gains but you need to know what you're doing. Long term, if stability favors the company, then you can make some decent tax-free gains.

 

[Lucky]

Thanks for the info Pks391

 

[pks391]

Thanks for the info Pks391

Happy to help

 

[Seppuku]

Hey Lucky,

Investment professional here.

All the big investment and insurance firms are invested in shares, there is a very good reason for that. Take the US Large Cap stock market for instance: in average, over the very long term (200 years), it has made 6.5pct return over inflation. This is *average*. There are negative years, there are very good years, but all in all, for a well managed diversified portfolio of stocks, it is a very profitable investment.

The main reason why most people end up losing money in stocks is "market psychology" and herd behavior. It goes like this. When markets are growing, people are watching and waiting. When markets have been growing for a while now, that's when many people enter the market. But that's about when the market correct and starts going down. Then the "late entrants" are stuck, watching their positions losing money. They hope now that the market is going to bounce soon, and just hold on their loss. But when the losses accumulate, this is when they capitulate and decide to sell, crystallizing huge losses. But that's also about when the market eventually bounces back and starts growing again. Just google "market psychology" and look at the images, you'll see tons of graphs explaining this.

Professional investors manage their portfolio patiently across the waves, go through the market peaks and troughs with conceding to emotions and panic.

What you really need to do, however, is watch for the positions which are hit by really bad news. See Volkswagen for instance, recently hit by emissions scandals. These ones are the ones that will take a hit and stay low for a while (could be years, or could be never, until they recover). You need to take them out of your portfolio and reinvest the proceeds into "good stocks".

I agree with pks that stocks that are paying good yields consistently, and are buying back their own shares, tend to be from very conservatively managed companies, and tend to be better in the long run. I would also stay away from the most volatile stocks - these are for gambling only.

There was a post by Man-O recently, he identified some brokers that allow you to build portfolios with small amounts.

Cheers,
Seppuku