How to make money in the Stock Market
A lot of investors think they can’t make an extra $1000+ a year on their own in the stock market because they don’t have a finance/accounting degree or because they are not good with numbers.
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The truth is you don’t have to have a degree and you don’t have be good in numbers.
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The key is to not underestimate yourself. Just as you take the time out to plan a trip, do the same for investing. Sit down, research, and plan.
I think of it as buying and selling clothes, basketball tickets, or even a car. It’s like finding a high quality item at a cheap price, then reselling it for a higher price to someone else, making yourself a profit. That’s kind of how buying and selling stocks is like.
There are several ways to make money in the stock market. I’ve profited from investing in stocks as well as trading options. YES THEY ARE COMPLETELY DIFFERENT. What’s the difference between investing and trading? My definition of investing is letting your money sit without touching it for a long period of time. Trading is moving your money within short periods of time. I’ll be discussing the many ways to do that in the next few weeks. Today, I’m going to focus on PASSIVELY profiting from INVESTING in stocks and dividends.
To quickly explain what passive vs. active trading is, think of it as a bus ride. The driver of the bus is actively driving to the destination whereas a passenger is passively along for the ride–meaning doing nothing but seating there until the destination is reached. An Active trader is actively involved in the stock market whereas a passive trader is just along for the ride.
To go deeper, an Active trader buy and sell stocks constantly with the intention of making money in the short term. Active traders typically do not hold individual stocks for many months or years, and generally do not focus upon long-term economic trends. Active traders aren’t involved in trading to earn money from dividends, they trade for a quick profit.
A Passive trader is interested in investing their money, rather than trading it. Passive traders invests their money and patiently wait for a return in the future. Passive traders also count on receiving corporate dividends. Passive traders hope for a decent return in the long run with minimum involvement.
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So how much money should you invest?
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ONLY INVEST MONEY THAT YOU WOULD BUY LOTTERY TICKETS WITH! Meaning, money that you are willing to throw away! DO NOT INVEST YOUR LAST DIME OR YOUR MORTGAGE MONEY!
AGAIN ONLY INVEST YOUR LOTTERY MONEY!
However, your probability of gaining profits is way HIGHER investing & trading in the market than it is playing the lottery. For example:
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Your chance of winning the lottery: = 0.001%
Likelihood of you losing your money in the lottery= 99.99%
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Your chance of winning a trade = 50%
Likelihood of you losing your money in the stock market = 50%
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You see, there’s a much higher chance of you profiting from a trade than it is winning the lottery. You have at least a 50/50 chance of winning with a trade (which I would rather risk) in the stock market (where I have some control) than in the lottery (where I have no control). Not to mention you can put in stop loss orders so you will limit your losses to whatever you want, for example 10% max loss. (Explained further in the DIY investing course.)
I’m not a rich person, but I do have a little extra money I set aside for investing. I have learned how to invest my small funds and profit extra funds. I definitely have made nice profits based on my initial deposit, but in comparison to other people, I’m small potatoes.
Here’s a great investment I traded (not including fees):
In 2012, I bought 10 shares of Visa where I made over an 80% return from one trade including dividends.
The thing I love about passively investing is that once you buy into a company, you don’t’ have to monitor it everyday. You set your goal and when your goal is met, you sell it.
I’ll break down the pricing for you. In 2 years I made a profit of $1,058 after investing $1,285. That’s over an 80% return. Here’s the breakdown:
| Bought 10 shares @ $128.50 per share (Initial Investment) | $1,285 |
| Sold 10 shares @ $231.69 per share 2 years later: | $2,316.90 |
| Plus total dividends I received over 2 year period | $26 |
| Total profit ($2342.90- $1285)
Total % gain |
$ 1,057.90=82% |
And here’s another example of AXP:
| (Initial Investment)
Bought 10 shares @ $67.35 per share Bought 8 more shares @ $75 per share |
$673.50 $600 Total Invested = 1273.50 |
| Sold 18 shares @ $90 per share: | $1,620 |
| Plus total dividends I received over period | $26 |
| Total profit ($1646-$1273.50)
Total % |
$372.50= 29% |
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How can you actually make a 30-80% return in 12-24 months with stocks and dividends?
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Investing in the right companies and diversifying your portfolio is the answer to making a nice return in the long term.
In my opinion, there’s no absolute right way to pick stocks. People use different methods. There are 2 common ways to pick stocks, either using a fundamental analysis or technical analysis. Fundamental analysis determines a company’s value based on balance sheets, income statements, and other financial statements. Technical analysis uses charts. Or as I call it, fundamental analysis uses numbers while technical analysis uses pictures. Well, I use pictures! Even with my background in accounting, I still advise and teach using pictures– meaning trends & charts (like diagram below)!
Learn more about how I pick my stocks here.
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So how much money can I make compared to earning interest in a savings?
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I’ll use $1,000 as an example. Let’s say you have a $1,000 you want to invest and profit 30% in 2 years. That would give you a profit of $300.
A normal savings account usually only give you 0.03% return which would be $0.30/year, which is LESS THAN $1 after 2 years!!!
Even if you only profited 10% in the stock market after two years, that would be $100! WAY MORE THAN AN A SAVINGS ACCOUNT.
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Savings Account
$0.60
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10% Return in Stock Market
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Now don’t get me twisted, you ALWAYS NEED A SAVINGS ACCOUNT FOR EMERGENCIES AND rainy days, but this is for if you want to pull some out to bring in a bigger profit. ONCE AGAIN ONLY INVEST YOUR EXTRA MONEY!
I think trading and investing is one of the best risks you could take for getting the most our of your money.
I absolutely love option trading, but that’s a post for a later time. Don’t listen to the myths (That’s if you’ve heard the MYTHS ABOUT OPTIONS).
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What you need to remember:
- You don’t have to be great in numbers to pick stocks.
- You can make more money in the stock market than having it sitting in a savings account.
- You do not absolutely need an investment banker to trade stocks.
- Take your emotions out of trading and trade the market in front of you.
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