In this video we will go over the ways you can make money in the stock market as well as the differences between investing and trading in the stock market.
So let’s get started. The simplest way to make money in the stock market is from stock appreciation, by buying a stock at a low price or any price that you believe it’s good and selling it higher.
Buy Low Sell High!
Usually the majority of traders do quite the opposite, buy High Sell Low, if you have any relation with Crypto trading you must have heard that quite a lot.
But let’s get back to our main objective of the video, the ways to make money and as I just said this is by stock appreciation. For example if you bought Apple at the beginning of 2019 each stock was roughly priced at 40$, while today is trading around 160. Buying at 40 and selling at 160$ is an example of buying low and selling high.
I know that the question you may have is how to determine which stocks to buy, well there is a procedure to follow which will allow you to check if the company is good or not, but even then you can never be 100% certain how a stock will behave. If there was such a way I am sure that everyone would be rich today.
The second way to make money in the stock market is through Dividends.
For those not familiar with the word, A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders.
Keep in mind that not all companies are paying dividends. Amazon and NEtflix for example belong to that list as they do not pay dividends. A well known company that pays dividends is Apple which every quarter is paying a small amount of money for each stock owner’s hold. As you can see the last payment by Apple was 23 cents. That means that if you had 100 shares of apple, you would have received 23$. I know that the amount sounds quite small, but you get this 4 times a year so in Apple’s case that amount would be close to $100.
What is great about dividends is that is a passive income, you still have ownership of all your stocks, you don’t have to sell, and at the same time you make some money.
Apple has a low Dividend yield of about 0.6%, but there are other companies that pay much higher dividends.
I will dedicate an entire video on dividends and we will go over some of the highest payment companies in it.
Now, there are other ways to make money in the stock market, such as shorting a stock, of course to do that you will need to have a margin trading enabled account.
For those who are unaware, Short selling occurs when an investor borrows a security and sells it on the open market, and then plans to buy it back later for less money. Short-sellers bet on, and profit from, a drop in a security’s price. This is quite the opposite of making money with stock appreciation. To be fair this method comes extremely handy in times when the market is on a downtrend. Shorting stocks could be complicated, so it definitely deserves its own video, something that is in my plans to do.
Lastly, you can make money by buying and selling stock options.
A call option gives the buyer of the option the right, but not the obligation, to buy the underlying stock at the option contract’s strike price. The strike price is merely the price at which the option contract converts to shares of the security.
A put option gives the buyer of the option the right, but not the obligation, to sell the stock at the option’s strike price. Every option has an expiration date or expiry.
To summarize the 4 ways you can make money in the stock market:
Stock Appreciation, Buy Low Sell High
Dividends, Earn Passive Income by owning a stock
Shorting a Stock, Bet that the security will decline in price
And last Call and Put Options.
In the second part of this video we will focus on the difference between investing and trading, because I am talking with quite a few people and there is definitely some misunderstanding about the two concepts. Many do think that it’s the same , but they are basically quite different.
Investment is the dedication of an asset to attain an increase in value over a period of time. The key point is in the last part of the previous sentence, and it is “ over a period of time”.
An investor is a person who is buying an asset for a long period of time, not for a week, a month, or a year, usually this needs to be an investment for a longer timeframe such as 5-10 or even 30 years.
If you have watched the previous video “ Can you make money in the stock market? ” you will know that history favors investments, that the stock market has been in a rise for the past 100 years, and that in the past 30 years the average growth was around 10% per year.
That is truly a great return, so when you plan ahead, lets say 30 years from now, you buy certain stocks that you have gone over and analyzed, you add them to your portfolio and you let them grow. Ideally you want those stocks to pay dividends as well, but as mentioned earlier not all stocks do. This is an additional perk, and good to have.
As long as the market performs well over the span of a long period like 5 or 10 years and your goals are set you can carry on with doing what you do and concern yourself with the market. A quite less stressful experience dealing with the market.
To add here a very important benefit of long term investments that has to do with taxes, long term capital gains ( which is anything bought and sold within a timeframe of a year) have less taxes, going from 0% to max 20% and that only if you make above 450K. This is quite great when short term trading, anything bought and sold within the year bears taxes starting from 10% all the way up to 37%.
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