Even though I enjoy everything on this website I have to say this is my favorite section I made. Here we will talk about all the different types of investing, evaluating different companies, how to invest, resources, and everything you will need to find a good company, whether it is your 1st or 50th investment. First, we will talk about the different types of investing to help you figure out your goals, and how you can invest to reach them (I do not talk about day trading as it is not my thing, and if you want a website talking about day trading go make your own).
Swing Trade???
Swing trading is when an investor buys and sells shares with the intention of selling within the next year or so. Traders can do this as a side hustle or as a full-time job, but it does require a lot of time.
Or Longterm Invest???
This is the Warren Buffett method (We will talk about him a lot) where you buy a solid stock you believe in, with a good dividend, and hold it until your kids graduate and then a little longer. Utilizing compound interest and exponential growth with dividends, you can receive 4-6% every year (After inflation).
Let's get this out of the way, no matter how you invest, be prepared to lose most if not all of it. The chances are slim to none for long term trading but are much higher for swing trading. This is because you are relying purely on news, investor confidence, and the fact that the market price of a stock is wrong, and your estimate for future stock price is correct.
Things to Keep in Mind
Firstly, stock prices have news and expectations already baked into them for the next 6 months or so. Wall street expectations and broadcasts from the biggest banks/hedge funds are public and their outlooks are on their websites. So, you have to believe they are wrong about something, and then actually be right about it.
Ex. Its March 2020 and the world is realizing how deadly COVID is, and the government is cancelling school, sending people home, and banning travel. Now, being the money minded swing trader you are, you brainstorm all the things people are going to do, and need, during a lockdown.
Thought Process #1
You are in your trading room in front of your 8 screens and come to a conclusion that during lockdown people will decide to buy workout equipment. They do not have their gyms anymore and need to do some physical activity. So, you invest into Peloton because they provide home bikes and other equipment you think people will buy in bulk.
Thought Process #2
You are having similar thoughts about peloton and Lulu (below) after you bought and sold them a year ago. Now it's almost the end of 2021 and you see Nike has been on the rise for a year now, so you buy into it. You think the amount of people needing athletic wear will continue to rise worldwide as COVID does not seem to have an end in sight. So, you buy into it only for them to miss earnings, people stop buying their shoes, and the stock price falls 70 dollars in a few short months and to this day has not recovered.
If you bought 50 shares of Peloton at the beginning of march for around $17 a share ($850) and sold them a year later at what you thought was peak COVID at around $120 a share for 6,000...... You profited $5,150 for just coming up with a thought, actually taking action, and believing in yourself.
Also, say you figured everyone would need new gym clothes, as people would be working out with all their new gym equipment. And everyone would start going for walks and runs on trails to get out of the house. So you invest in a sport clothing company named Lululemon at the same time as Peloton.
Looking at the Lulu stock price graph if you bought and sold around the same time as Peloton and the same amount of shares you would profit $9,650.
That's about 15K profit for just reading the news and then actually taking action.
This is why you see social media investors who makes hundreds of thousands in a few months on the stock market. This strategy has the potential to make you a millionaire in a few years, but like we saw with Nike (A good, fundamental, well-known brand), could lose you those thousands just as easily.
Warren Buffett, one of the richest men in the world, said he wished the stock market was open only a few days a year so he could buy the companies he likes and then never have to look at it again until next year. This is what this strategy entails, finding solid companies you believe in and holding them, NO MATTER WHAT, for 10...20...30 years. I enjoy this strategy much more than swing trading as the research and investing are significantly less stressful. Utilizing compound interest and exponential growth you can make ever growing returns on a company over decades.
Dividends are the Holy Grail of long-term investing so lets go over a few facts about them. First off, dividends are a quarterly amount a company pays a shareholder for each share of stock they own. It is free money for owning the stock, the company sends it out as a sort of "Thank you." Companies pay them with extra cash generated from the business and in most situations, companies are able to set their own dividend amount.
This is the dividend info for Sunoco (From Schwab website).
The dividend rate is the amount paid per year for each share. So, one share at the 56 dollars it is currently at yields $3.37 per year for owning the stock. You receive $0.84 per quarter on the Pay date. The yield is the Dividend rate divided by the last closing stock price.
Dividends are so powerful because if you reinvest them in the company, you can exponentially grow your share amount over time. I bought 5 shares of Sunoco a while ago and after reinvesting the dividends after the first quarter I had 5.07 shares. So next quarter I will receive dividends on 5.06 shares, bringing my share count to about 5.13.
People usually do this in much larger amounts. If I had bought 65 shares of Sunoco at 56 dollars for $3,640 and reinvested the dividends I would receive 1 new share after the 1st quarter, and 1.1 shares after the second quarter. Meaning in 6 months I received 2 more shares for a total of 67 for just owning the stock and receiving dividends.
Click the video ⬇️
Keeping in mind Free Cash Flow of a business, dividend growth AND company growth overtime, buy backs, and not just looking at the payout ratio are KEY when choosing a long-term dividend stock.
Here is a Free dividend calculator on MarketBeat.com where you can see how an investment will compound over a set amount of time.
When to Sell a Stock
Now that you know about investing let's say you bought your first stock and have been tearing yourself apart on if you should sell. Asking questions such as What if it goes up after I sell? How can I know this is the right time? What if I get it wrong?
Well, here is what Warren Buffett (Greatest investor of any generation) says about selling a stock. First off, he says you should invest in companies you would plan to hold forever but if you want/need to sell there are 3 main reasons he decides to sell.
If you find a better stock
If you need more money for a stock you believe is better than the one you own there is nothing wrong with selling. Especially during bear markets (Market as a whole is down) when stocks are on a discount.
Company loses Competitive Advantage
If a company once had monopolistic characterizes but then was replaced by new up and coming technology, this would be a good reason to sell. Such as the digital camara replacing film camaras.
Crazy Bull Markets
A bull market is when the stock market as a whole is up and during this time stocks are generally way overpriced (such as the market boom after Covid at the end of 2023 into 2024). This means you can sell your stock as a significantly higher price than it should be trading for, and a good tell to start investigating a sell is a P/E ratio (explained in metrics) above 40-50.
When thinking about how you should invest for your future you need to think about your financial position, your goals, and amount of time you are willing to commit to investing.
As we saw with Nike it is possible to lose thousands in a few months, but if you are young, you have decades to make the money back, and can maybe afford to take that risk in search of very high returns. Starting to invest at a young age is important so you can start compounding interest. Now if researching companies is not for you or is too stressful, check out the IRA options in the retirement page.
No matter which style you choose the tabs in this page will inform you on some of the most important things to look for when choosing any company, no matter the investing style you choose. But keep in mind there is no one stopping you from doing both, this will require more work as you have to research 2 separate types of companies, but people do this all the time.