Archive for May, 2011
Maximizing Your Stock Market Return
Stock market return refers to the profit generated by traders from stock market investments. This includes both the dividends offered by companies to their shareholders from time to time as well as the profits earned through buying and selling of stocks.
Trading in the secondary market is the most common method of earning returns from the stock market. The basic principle behind this is buying a stock at a lower price and making a profit by selling it at a much higher price. Dividends are another way of generating returns from the stock market. Most companies making a profit offer a percentage of this amount to their shareholders towards the end of each quarter. However, regardless of how it is generated, stock market return is uncertain and subject to market risks.
Nature of stock market returns
Returns from the stock market, both from trading and dividends, are never ensured or fixed. They always remain subject to market risks. Also, the returns differ from one trader to the other depending on the accuracy of his stock market analysis and his readiness to take risks. Risk is an integral part of the stock market and negative returns are as likely as positive ones. Most investors conduct fundamental or technical analysis to help them invest successfully.
Fundamental and technical analysis
Fundamental analysis includes study of relevant company data regarding history of profits, cash flow, return on assets etc, as these can affect the intrinsic value of the stock. In such analysis, the fundamental strength of a stock is used as a parameter to predict its price movement. Such analysis is more significant for long term investments.
Technical analysis is extensively used by swing traders, intra-day traders and momentum traders. In this case, various statistical charts and tools are used to forecast future stock price trends. A stock’s historical price movement is also an important consideration in predicting future trends.
Derivative tools
To hedge the risk related to stock market investment, investors make use of various derivative tools. These instruments are useful for speculators as well. Traders make use of derivatives to benefit from price arbitrage among different markets. Although arbitraging and hedging does not always provide higher returns, it helps in protecting capital and minimizing losses.
Investment tips for beginners
The first thing you need to do is find out as much as possible about stock market and familiarize yourself with it. Investing without knowing the fundamentals can be an expensive gamble that you are likely to lose. Before investing, it is recommended that you study the market price behavior of different securities. This is called ghost trading. This will help you understand and predict market price trends, which is essential for a positive stock market return.
Being up to date with current affairs is another important requirement. Stock prices can be affected by any relevant event. For instance, expansions or big contracts can give a boost to the share price of a company, while accidents or losses to the company can bring down the price.
Read Stock Market Books To Become a Better Investor
Trial and error method is not always the best way to learn about the stock market. A number of traders realize this the hard way, by making investments and losing big. A better way is to be fully prepared before investing your hard earned money in the stock market. One of the best ways to educate yourself is to read stock market books.
Why you need stock market books?
Although the stock market offers unlimited earning potential, the returns are unsure and subject to market risks. Unless you prepare yourself by finding out as much information as possible, stock investment can be a very risky gamble that you are likely to lose. Many misinformed investors have ended up losing huge amounts of money. Especially for beginners and people unfamiliar with the financial industry, investing in the market can be an intimidating proposition.
The only way to boost your chances of successful investment is to familiarize yourself with the market. Books about how the stock market functions and how you can make money from it are one of the best sources of information. Several books are available that not only explain the fundamentals of the stock market, but also offer tips for successful investing. You do not need to blindly follow advice given in each and every book you come across, but many books written by experienced and successful traders offer information that can help you make a lot of money
Stock market books are available for all kinds of investors. There are several authoritative books for beginners as well as experienced investors. You will find a lot of valuable information in these books.
Recommended books
The Little Book of Common Sense Investing: The only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle, Little Book that Still Beats the Market by Jeol Greenblatt and The Neatest Little Guide to Stock Market Investing by Jason Kelly are a few of the interesting books about the stock market.
The book by John C. Bogle is perfect for average readers who wish to know more about stock market investing. Unlike confusing investment books that go on and on for hundreds of pages, this book is an easy to understand guide that offers an insight into behaviors that are critical to success in investing.
Jeol Greenblatt’s Little Book that Still Beats the Market is a book worth reading for any one interested in stock market investing. The beauty of the book is that it is simple and it works. It explains in an uncomplicated manner how businesses create value and how you can make money in that process.
The Neatest Little Guide to Stock Market Investing by Jason Kelly is another great read. It is entertaining and witty. It explains many complex issues in a very easy to understand language. Beginners in stock market investing will find it very useful. The book also offers advise on how to find the best stocks, criteria to follow and data interpretation.
There are hundreds of stock market books available in the market today, but it is best to read books written by successful and experienced traders. These books offer a lot of useful information and tips to help you maximize your stock market returns.