Your neighbor enjoys watching the financial news, and occasionally he buys or sells a number of shares of common stock in a publicly-traded company. How does he do that?
He knows why he does that before he plans how to do it. He seeks to invest in a growth company before too many other investors figure it out and drive up the price of the common stock. But, he also likes to win at what he does, and this aspect of investing can shift from a plus to a minus. The “how” begins with obtaining current, relevant, and actionable investment information. A variety of free television and online resources provide that information.
Your neighbor records the morning and afternoon “CNBC” investment television shows. After he comes home from work, spends time with family, and enjoys dinner with family, he spends thirty minutes – to an hour skimming through the day’s CNBC shows to learn investment news about that day’s financial markets. Perhaps, he will glean information about a particular company, whose stock moved up or down on news. He web searches the company name in order to learn its stock ticker symbol.
He accesses “Big charts” to learn about the company and how its stock has performed today, and over periods of time, paying close attention to the company size, and whether or not it pays a quarterly dividend. By searching the stock ticker, paired with the words “dividend schedule,” he might find out that the company will pay the next dividend to stockholders who own the stock on a near-term date.
Your neighbor does not gamble. He invests. Rarely will he invest in a newsworthy stock. Instead, by research, he may determine to add that stock to his watch list in order to do a more in-depth analysis of what has caused the stock to move up or down in the past. Over time, he has amassed a list of about 30 stocks, with some in all ten S&P 500 sectors. From the CNBC shows, he learns which sectors advance today.
He trades stock with a reputable online broker that charges a $6.50 per trade commission. He only trades by using a limited amount of money that he has set aside for this purpose. He prefers to buy no more than 100 shares of any stock, and he times the purchase about a month before the company’s ex-dividend date when the volume has picked up on trades in that stock and he sees that the price has begun to rise. He sets the buy price as a “limit” order (because he does not want to buy if the price swiftly rises above his target price), and he keeps that order alive by selecting “good until canceled.”
If fresh news changes the parameters, he cancels the buy order. Selling presents a greater challenge. After purchase, should the stock price rise quickly, the temptation to sell it for a quick profit presents, but suppose that the company’s business has begun a rise to a new major level (the stock to keep and pass on to the grandkids)? He pays more attention to the news on the stock before he decides what to do about selling it. Should the stock go down on unexpected bad news, usually he sells with little thought, because this might limit the loss and he can count losses against gains in other stocks for the tax year.
Not a trained, licensed investment professional, your neighbor also is not you. Conduct research, limit risk and learn cautiously about investing that might work for you. Your neighbor never invests in what he does not understand, and he never listens to specific investment trade advice.