Investing in the stock market requires a tolerance for volatility. The value of stocks can change slightly, steadily, or violently. If you cannot withstand the volatility, then you should probably invest in bond instead of stocks. Conversely, if you can withstand the volatility, then benefit by utilizing the following information.
Always remember that risk is typically inversely proportionate to the rate of return. The lower the risk, the less likely you will receive a higher rate of return. Conversely, the higher the risk, the more likely you will receive a higher rate of return. A low risk investment typically consists of savings account and bonds while a high-risk investment typically consists of stocks. The advantage of the higher rate of return is that a lower total amount is required to invest to achieve your investment goal(s). Only invest in stocks when you are comfortable with your decision, not due to an impulse, pressure, or a hot stock tip because you will most likely make a bad decision. Instead, invest in companies whose market(s) you understand (i.e. technology, retail, financial, or healthcare) and products you are familiar with and use.
Stocks are purchased with the intention for the price of the stock to increase in value. A stock transaction can be specified as a market order or a limit order to purchase a specified number of shares. The market order indicates the transaction will immediately be placed into a queue of investors wanting to buy a stock. A limit order indicates the transaction will be placed into a queue at a specified price resulting in the transaction becoming a market order. The request to purchase shares of a stock will be matched to someone else requesting to sell shares of a stock. Most investors request a stock transaction at an even-numbered stock price such as $81 or $81.5 per share. The problem is that a large number of investors will be in the queue for the same price resulting in a longer time for the transaction to be executed. A delay may result in the transaction occurring at a different price specified which may or may not be beneficial. An option is to request a transaction at an odd value such as $81 1/16 or $80 15/16 per share which will probably have a smaller queue of investors allowing the transaction to be executed quicker and at or near the desired price. The execution of a trade does not occur exactly at the price specified, but when the value of the stock exceeds the requested value. Requesting a trade to occur at $80 when the current price is $79 will be probably be executed when the current price is above $80, not at $80.
A way to receive greater earnings from a stock, and also unfortunately an opportunity for a larger loss, is to own a large number of shares. For instance, if the value of a stock increases by $1 and you own 1000 shares, then your value increases $1,000. Conversely, if the stock goes down $1 then your value decreases $1,000. If you are not able to own a large number of shares, then purchase what you can and slowly build up to a larger number of shares. Investing takes time, therefore be patient!
A problem with conducting a transaction involving a large number of shares is that the transaction may not be executed at the desired price. Remember, the request is in a queue with other investors at the same price which is matched to other investors wanting to transact the same number of shares. The resulting large transaction may be delayed because no one else wants to conduct a trade with a large number of shares. Instead, consider accumulating/liquidating the number of desired shares by conducting multiple transactions. The fees for conducting the trades will be higher, but you will be able to execute the trades.
Many companies announce information such as quarterly earnings, stock splits, and business practices after the market has closed. The result may immediately result in an impact upon the value of the stock. If you had not owned stock before the announcement, then you will have typically already missed out on the benefits if the stock goes up, or saved yourself from the losses if the stock goes down. In any case, the opportunity has passed. Many announcements cause a large change in the value of a stock only to retrace its steps later in the day or in the subsequent days. Although, many announcements cause the stock to continue in the same direction for several days. Many instances have occurred in which an announcement by a company in a specific market causes all other companies in the same market to have the same results. For instance, a big technology company announces a significant positive business trend which results in an increase in their stock value which also has a domino effect upon many other technology companies simply because they are in the same market. The direction the stock will proceed is dependent upon the performance of the company, their business practices, and the market perception of that company.
The release of company information before the official announcement after the market closes constitutes insider trading. Insider trading is illegal because it provides unfair advantage to specific investors. Although, there is a way to benefit from legal insider trading. Company executives are required by law to provide a history of their stock transactions. The information then provides investors the means to gauge the possible future direction of a stock's value. Executives who purchase stock may indicate a bullish (increasing) trend while the sale of stock may indicate a bearish (decreasing) trend. The information is not a guarantee, but simply a prediction due to an assumption the executive understands the future direction of the company.
Ensure all literature received from companies is read. The literature can be in the form of an annual statement or merger information. The reason is because some of the information may be to your disadvantage. If so, then you might want to consider selling your shares in order to gain profits before your investment decreases in value or to prevent yourself from suffering further investment losses.
The stocks purchased through one brokerage can be transferred to another brokerage without a tax penalty. You might benefit from transferring stocks to another brokerage because the fees for transactions or services might be lower. Check the existing brokerage determining if there are any fees associated with transferring all or a portion of the stocks to another brokerage.
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