Do You Invest In The Stock Market? Here Are Some Healthy Tips

byLHenderson2

1.3K followers

6 years ago

Some of you who are reading this post may say "yes" to the above question. You may have a retirement fund or you may be your own investor selecting your own stocks for your portfolio.

Some of you may say "no" to the above question because you may not have a stock portfolio of your own or you may not have any retirement funds to look forward to. Here's what you need to know.

Everyone Contributes to The Stock market

Whenever you reach into your pocket to buy something witn cash, credit card, debit card, or check you are contributing to the functionality and vitality of the stock market.

If you own a car or truck chances are the company is listed on the stock exchange. Own a Ford ? The stock symblo is F. Own a Buick, Chevy, Cadillac, GMC truck ? All of these companies are owned by General Motors, stock symbol GM.

Do you shop at Walmart, Target, Amazon, or Macy's ? Do you eat at McDonald"s ? All of these companies are on the stock exchange. Walmart's symbol is WMT. Target's symbol is TGT. Amazon's stock symbol is AMZN. Macy's stock symbol os M. The symbol for McDonald's is MCD, Everytime you spend money for the products of these companies you are contributing greatly to their sustainability and profits.

But let's use a more simple example. Suppose you need a mop for your home. So you go to the 99 cents store to buy your mop. The cashier rings you up , collects your money, and gives you your change. You go off on your merry way.

But guess what? The money you spent at the 99 cents store helps to pay for the cashier's salary. Then he or she gets paid. They have to pay their bills. The may have a phone bill with T-Mobile, Sprint, or Verizon. They may need to get gas for their car. The petroleum company may be on the stock exchange. They may have to get their prescriptions fillied at CVS. CVS is on the stock exchange. Do you see where I'm going here? Everytime you spend money you are contributing to the stock market. All of us are involved whether you are spending money, have a retirement fund, or both. Now let's get a basic overview of how the market works .

Dow Jones, Nasdaq, S&P 500

The Dow Jones Industrial Average, S&P 500 and The Nasdaq are the major indexes looked at closeley every day to determine where the money is flowing in the stock markrt.

The Dow Jones Industrial Average is an index that contains defensive stocks . These stocks are considered to be defensive stocks because they are stocks in companies that we must buy from such as food, shelter, clothing, cleaning supplies, etc.

The Nasdaq index contains growth stocks. These stocks are technology stocks and are considered to be stocks in companies people buy from when the economy is good and they have extra money to spend.

The S&P 500 is an index of growth and defensive stocks, I would call them middle of the road stocks . This index is watched very closely every day by day traders to get a sense of which way the market is going, up or down.

If you ever watch CNN if you look at the bottom right hand corner you will see arrows for Dow Jones , S&P 500 and Nasdaq mostly during the daytime. The arrows will either be green or red. A green upward arrow indicates that the displyed index is currently trending higher. On the contrary if the arrow is pointing downward for the displyed index, this means that the index is trending lower. So Let's put this all together so you will have a better understanding of how to read these indexes.

Dow Jones Up, Nasdaq Up, S&P 500 UP ; the entire market did well for the day ( if this is what you see after the closing bell when the market closes at 4:00 p.m.

Dow Jones down, S&P 500 down, Nasdaq down; the entire market underperformed for the day.

Dow Jones Up, Nasdaq down, S&P 500 down; the money flowed into defensive stocks.

Nasadaq Up, S&P down, Dow Jones down ; growth stocks performed very well for the day.

S&P 500 Up, Nasdaq up, Dow Jones down; stocks were mixed but mostly went to growth stocks.

S&P 500 UP, Dow Jones Up, Nasdaq Down; stocks were mixed but money flowed mostly to defensive stocks for the day.

Supply and Demand

Supply and demand is an essential component used by investors to determine whether a stock is a good buy. So let's talk about supply and demand and how it relates to the stock market. Supply is the availability of the item. Demand is the amount of desire a consumer has for the item.

We'll use oranges as an example. Let's say oranges are selling for 10 for 10 dollars. Then all of a sudden there is a hurricane in Florida that damages the orange crops.What happens ? there is a limited supply. But nthe demand for oranges is still there. So now oranges are selling for 5 oranges for 10 dollars. High demand , low supply, the price increases.

On the contrary, if there is an excess of a product and not a lot of demand for the product, then the price will decrease in order for the seller to get rid of the merchandise. An example of this would be a worsening economy with unemployment rising. New cars may be piling up on the lot because sales are down What does the company do? Offer incentives, rebates, sales, and lower interest rates to move their inventory.

As a smart investor you'd be looking for those stocks that have the potential to move upward in price based on the supply and demand priciple.

Let me give you an example. Let's say there is an outbreak of a deadly disease that is spread by misquitos. There is only one company that provides tha antidote for the disease. The whole United States population needs the antidote. The company is listed on the stock exchange at $4.55 pershare. What do you think will happenn to the stock price? If you're thinking the price will go up, you're right. Demand will be through the roof. Investors will buy the stock sending the price to the moon. And the company would have to ramp up supply to accommodate the demand.

Percentage Movement

This is the last topic I would like to cover. Percentage movement of a stock plays a major role in the investors stock selection process. example;

Stock A: price $25.00. If the price moves 20% your new stock price will be $30.00

Stock B: price $140.00. If the price moves 20% your new stock price will be $168.00

For stock A it only took a $5.00 move for you to make 20%

For stock B it took a $28.00 move for you to make the same 20%.

Let me show you the benefits of understanding this and how research comes into play here.

Let's say that Boeing has a contract to build 3000 planes. Let's say for the purposes of this example that the price of Boeing stock is $200.00 per share. Boeing outsources some of the parts for the plane so there are other small companies that supply Boeing but they are much smaller than Boeing. But as long as Boeing is making money , its suppliers make money too and their stock prices will rise.

The key thing here is that those smaller companies may be listed on the stock exchange with smaller stock prices.

So, for example there may be a company that supplies all of the insulation for the planes and their stock price is $8.00. If their stock price it only $8.00 then it only takes a $1.60 move in the stock price for the investor to make a 20% profit.

I hope this has been helpful.