How to make money with stocks?
We saw in the previous post how not to lose money with stock investments. While it's an important starting point, the question that remains unanswered is: How do I make money in stocks? This article is my attempt to show you the main strategies an investor must follow to be successful in this market.
Why invest in stocks?
The first stage of our journey is to have well resolved some why within us:
- Why should you invest in stocks and not real estate?
- Why should you invest in variable income and not fixed income ?
- Why at all should you invest in something instead of just spending the money ?
Take some time to develop a strong enough motivation to endure the long journey ahead. Here are some of my whys: because I want to be free and work not out of obligation but for pleasure ; because I want little by little to create a better future for myself and my family; because it's one of the things I do well and I enjoy doing it. If your motivation is powerful, there is nothing that can resist it.
What is the reason to invest in stocks?
Try now to understand whether income or capital gain is more important to you. The vast majority of investors are mistaken in this concept. If you have a considerable surplus of income , the most interesting thing to do is to look for investments that bring the maximum return possible, that is, your focus is capital gain . However, if your only source of income is investments , the most prudent thing to do is to consider income as the most important element. All that we must avoid in this case is to sell the shares early to pay our day-to-day bills. (I leave here the link to another post that explains the essential difference between them).
What is Value Investing?
Lastly, buy low and sell high . For this to happen, you must buy something at a price lower than its fair price and wait for the market to recognize and converge to the true value of the asset. For this to happen, you must spend some of your time trying to discover the true value of the stock you are considering purchasing. Some tips are: attend company meetings, read financial documents, talk to the investor relations manager , and look for an analyst you trust. Do the homework!
The investor and the market
As we have seen, in order to make money from stocks it is necessary for the investor to carry out a series of internal and external investigations.
In the internal investigation, we deal with the investor himself, we will try to understand the tenacity of his motivation and whether his financial project includes the needs for income . In the external investigation, we deal with the market and use our best efforts to understand the fair price of the prospected share .
Remember that the greatest risk in investing in stocks still lies with the investor .
To think about
How to find out the fair price of a stock?