How To Make Money From The Stock Market
The stock market is like the headquarters of business in the world. Since its inception on May 17, 1792 (The NYSE to be precise), the stock market has gone on to become a hub for players in the business sector who wish to show that they have come of age as well as get public funds to boost their capabilities and services. The stock market has gained renown for being a place where huge sums of profit can be made legally and in short periods by trading in shares of companies, otherwise known as stocks, hence the name Stock Market. While the promise of making huge profits drives people nuts beyond reason in investing, some others will be scared by the possibility of incredulous losses as well, lol. Anyway, this piece is for those who have made up their mind to get their hands dirty and risk their funds for the possible benefits that could accrue from their risk. If you’ve already gone through our last post on how to invest in the stock market, you will know that some premise already exists that you must invest first in the Stock Market before you can make money from the stock market. Some basic points include:
- You must identify the asset class you want to invest in e.g Real Estate, Oil & Energy, Software etc
- You must pick the company or companies that offer stock in that area e.g. Shell in the Oil & Energy Sector, Microsoft in the software sector etc.
- Then you must put in your money (invest by buying their stock).
Enough with the preliminaries, lets delve into the real thing. How can you make money from the stock market? Well, the simple answer is to invest in the right stock. Truth be told, not all stock is a good venture at each point in time. You really need to know which stock area is in a dip, which is on a high to guide your choices. It wouldn’t be advisable to invest in a company or sector that’s on an all-time high because the most likely situation from there is a dip. Revere’s the same for sector/company on an all-time low. However, don’t just take the above hook, line and sinker because multiple factors could come into play to disrepute cliché analysis. Anyway, here are the ways to make money from the stock market:
- TRADE IN STOCK
Then basic meaning of trading is wanted this encompasses (Buying & Selling). You could trade stock by buying them when they drop in value and selling when they go up. I’m trying to keep this in most basic terms so as not to confuse those who may be new to the whole concept. So, for example you find the stick of a company at $50/unit and you guys at that price. You constantly watch it and wait till it hits maybe $57 dollars and you sell off immediately. This could happen in minutes, hours, days, weeks, months etc. but the main point is you sell it once it gains a substantial amount higher than the purchase price. This is the act of trading stock. Honestly, you would need to constantly monitor your investment and keep a keen eye, studying market trends, economics policies, weather situations, human activities and all what not that could impact the stock field you have invested in either negatively or positively. For example, the Ukraine war has had a huge impact on the agricultural sector especially with regards to grains and baking. While this may be bad for consumers, it’s good for investors outside Europe because their prices would spike due to increased demand stemming from scarcity or panic buying. Same thing applied to the Oil & Energy sector as prices spiked globally due to EU sanctions on Russian Oil & Gas. Trading stock is a sure way to make money from the stock market but this is usually highly dependent on your initial choice in stock in the first place and this would fit best for short term investors and people who have little loss/risk tolerance
- BUY AND HOLD
This concept would hold sway for long term investors who have the stomach for high losses and risk. So, if you have very little risk tolerance, please do not come to this. Ever heard the saying “Go big or go home”, this is where it applies. Investors here would usually invest in a stock, to hold it for long time periods. Sometimes, the investments could be block sums or little sums constantly put in over a period thereby resulting in an accumulated lump investment. The benefit of this is that over a period of years, a company most likely would grow, and their stock would do same, as a result, your investment literally grows into a stable price much higher than when you bought. Your losses could also be massive if the said company(ies) fail to grow as well. For example, in December 2015, Tesla stock price stood between about $48 - $60, fast forward to today, Tesla stock prices are between $750 - $790, that is literally an increase by over 1600%. So, if you bought 200 units of Tesla stock at $48 in 2015 for $9600 and just held it, your investment today would be worth about $155,200 dollars ($778/Unit). Sweet, eh? That’s the trick, the value most likely grows over time, and you don’t have to worry about checking the daily value as often as the stock trader. According to Forbes Advisor, a report from Putnam Investment showed that the stock market gave returns of 9.9% to those who stayed put between 2000 & 2017. Seems small but you turn that into actually dollar amounts, you’ll go crazy.
Another upside to this is that it opens you up to dividends which traders who jump in and out cannot get. As a plus, it is always advisable for people who choose this method to always reinvest dividends by purchasing more of that stock or some other one because it gives you more shares that would amount to more dividends going forward and higher Investment value due to more share units. Again, remember that as your profits could be unimaginable from this, so could your losses unlike the traders who could quickly sell when things are going too bad to limit their losses. So, again this is for high-risk takers.
- FUNDS OVER SINGLE STOCK
Do not put all your eggs in one basket is a proverb that readily applies for the stock market and over generations people who follow this advice have reaped the benefit big time. You’ve probably heard by now that the safest way to invest in the stock market is to diversify your portfolio (The assets you own in the market). This simply means investing in more than one stock class. For example, instead of having all your investment in real estate, you could better have some in oil and energy, agriculture, tech, software, automobiles etc. This generally gives you better balance and shock absorber in the market as a loss in one stock class could easily be balanced out by profits in another or other stock classes thereby giving you a bit of protection in your portfolio.
Now, you could do this (diversification) by purchasing individual stock of different companies which could be sometimes tiring and a lot more costly, but an easier way to do it is by investing in funds such as Mutual Funds, Exchange-Traded Funds (ETF’s). Funds are an investment asset that encompass a pool of stock options from diverse stock classes but managed under one portfolio. So, under them you could have stuff like stock from healthcare, automobile, transport, software etc under one portfolio. Sometimes though, the funds could be a pool of asset from just one Investment class. A simple way to look at this the fruit salad ideology. You may not be able to purchase apples, bananas, cucumbers, watermelons all at once and independently but you could purchase a plate of fruit salad that has all the above-mentioned fruits in smaller portions but in one package for the same price you would probably have used to buy only bananas and cucumbers. While ETF’s and Mutual Funds operate similarly, they have a few differences such as the management style and how the value of assets are calculated. But that’s not the crux of this piece so, we won’t delve into that. The main point is that funds give you protection from individual stock losses, sometimes inflation and the value of your asset have the potential to grow fast.
There you have it, the above are the ways to make money from the stock market. Feel free to find out more possible options for yourself and thank you for the patient read.