HERE IS SOME STOCK MARKET RELATED DETAILS AND 5 TIPS.
When you think of investing, the first thing that comes into mind is this complicated world of the stock market. With so many charts and numbers, it’s easy to get confused, so let’s break it down and try to make a sense out of it. Let’s say you have built a business, but now you need some more money to expand or maybe you just want a private jet. Where do you get the money from? Here is an idea for you, why don’t you breakdown your company and sell part of it while you keep the majority to stay in charge.
That’s what the stock market is for, and this process is known as Initial Public Offering (IPO)But how much money can you make? Let’s take an example of Mark Zuckerberg’slittle toy – Facebook. It went public in 2012 with 337 million shares at a price of 38 dollars a share. Not bad, right?! But, when he realized that, that there are so many more people who want a piece of his pie, he added another 84 million shares (421million). And guess what? He sold every single one of them. And raised 16 billion dollars.
He literally became a billionaire in just a few hours. In fact, the stock price increased to 45 dollars within the first day of trading. It seems like Facebook was doing great, but it was too early to celebrate because it felt back to 38 by the end of the day, and that was just the beginning. The bad news was just starting. In the next few weeks, the stock crashed to as low as 20 dollars. Twice smaller than its original price.
Now, to understand what’s happening here, we have to get to the root of the stock market. In the past stocks were acquired primarily for dividends. Theoretically, when you buy a stock, you become the owner of that company. Which means that you like any other owner. have the right to the profit of the company. Congratulations, you have purchased 10 facebook stocks in January of 2017, and you are now the owner of Facebook exactly like Mark, and I am not kidding. So, Your company (Facebook) makes 15.934 Billion dollars,
How much of that belongs to you?! At the end of the day, you have spent 1300dollars to buy your 10 stocks. (Facebook stock price in January 2017)But lets first take a look at how much stocks are there in total. It turns out that there are almost 3 billion of them (2.956 Billion). I doubt that your 10 stock matters now. But let’s be optimistic. Because, if we divide the net income on the numbers of shares, each stock should earn a little over 5 dollars (5.39= 15.934 Billion/2.956 Billion), by the way, that’s known as EPS (earnings per share).
In other words, your 10 stock suppose to earn you almost 54 dollars (53.9). Not bad, right?. But that’s just hypothetically, in practice, you get absolutely nothing! The board of directors is the one who is going to decided what to do with this money. And their first priority is to fill their pockets and expand the company, so no one really cares about your 10 stocks. But don’t worry, not everyone is a scammer like Mark Zuckerberg.
For example, last year Apple paid 13 billion dollars in dividends (12.769 B) or 2.5 dollars for each stock (2.46). Of course, it’s not much for a stock that costs 170 bucks, but something is always better than nothing. However, today, it doesn’t really matter how much the company pays as much as the price of the stock. Apple’s stockholders experienced a 33% gain within a single year! That’s way better than the market’s average. ( from $120 to $160) You probably have already heard that Apple is the first company to cross a trillion-dollar valuation because its stock price crossed200 dollars.
But what if I told you that until June of2014, Apple stock price was 645 dollars. Does that mean, that the company was already valued at more than 3 trillion dollars? Oh, god, this stock market is so freaking complicated. Let me explain. There is something called stock splits. Each stock was split into 7 pieces, and the prices were decreases proportionally (92.7 dollars).
Technically nothing really changed, but now more people can afford the stock and join the community of Apple investors. Since the stock now costs 92 dollars. But not all companies do that, some prefer to only work with serious people such as Warren Buffett. His company Berkshire Hathaway has never split their stocks. that’s why it only has 1.68 million shares, in comparison, Apple has 5 billion (4.91 Billion) That’s why a single buffet’s stock (BerkshireHathaway) costs over 300K dollars.
I guess most of us will never join buffet secret investors society. But don’t worry, Buffett wouldn’t mind taking your money as well. That’s why he created class B shares which are more affordable (200usd).
Five Tips Before Started Trading.
- Lesson #1
Don’t focus just on the money that you could make, always consider the money that you can lose, protect your butt because 90% of traders lose. I don’t want that to happen to you. Too many people get infatuated with the potential and they don’t think that they can be wrong, they get very narrow-minded, they have blind spots galore. So understand you can lose on any trade. So that should make you more conservative.
- Lesson #2
Cut losses quickly. I wish someone had told me this where if the trade doesn’t go well if a trade is going against you for whatever reason, okay? Anything can happen, the longer that you’re in stock especially a volatile stock, a volatile penny stock, the greater risk you have, they might have good news, they might have bad news, they might issue toxic financing, they might somehow do good financing where they raise a lot of money at the current price, which is a very big positive, something might happen in the overall market, three out of four stocks fall on the market.
Rule number one, you cut losses quickly. That way you don’t have to think, okay? It makes it very mechanical, you stay very disciplined. It’s very difficult to do this though because you wanna make money but sometimes you have to focus on rule number one and you have to cut losses quickly. Sometimes the best trade is a small loss, containing that loss, not letting a small mistake turn into a potential big disaster.
- Lesson #3
I wish someone had told me about, I guess I would say, singles add up. I wanted to be a millionaire when I first got started, I think everyone wants to make a lot of money even if you say oh, I don wanna be a millionaire, I just wanna make an extra 50,000 but you still want money, right? Like you get into trading because you want money.
I wish someone had told me that the key to making a lot of money especially with penny stocks is small gains added up. Okay, it’s not going for home runs, it’s not researching 5000 companies and trying to decide the one company that’s like the best technology. That’s like trying to find a needle in a haystack, it’s not worth your time, there’s terrible odds. For me, I want to take small gains, $100, $500, $1,000, $2,000 on stocks that are already moving.
- Lesson #4
Focus on stocks that are already in play. With penny stocks you don’t need to be first, is actually bad to be first because you might be waiting a week, a month, six months, a year, five years before the market catches up and meanwhile, there are opportunities galore and you’re stuck in whatever stock because you’re like, oh, I’ve done the research, I’ve seen it. I’ve seen so many companies come and go. Even if you do perfect research, even if you know everything, something could happen and the company will fail.
Most penny stocks do fail so focus on plays that are hot with news that is moving, that have a lot of volumes, and that you can exit easily. I would not do any restricted stock market, I would not trade in liquid stocks where there’s not a lot of volumes where you can’t necessarily get in or out very easily, stick with stocks that are in the play where there’s kind of like the day trader mob, where they’re moving in and out of the play so you have a lot of volatility whether you like going long or short.
- Lesson #5
5th things that I think you should know, be willing to go long or short, don’t just say, oh, this company is terrible, I will never buy it. Guess what sometimes the most fundamentally screwed companies spike the most because they have the shortest sellers in them and that creates a short squeeze especially what’s happening in 2019 lately.
Do not just say, hey, there’s no way to make money in this, there’s usually away, there’s usually an angle whether you wanna bet on higher prices or whether you say, hey, this is a scam that is promoted by email and newsletters and once the email and newsletter stop promoting the stock is gonna crash let me look for shares to short.
Start looking for different potential profit angles and there might not be shared to short, there might be no profit angle but at least start considering that.
When I first got started trading in stock market, I’m always thinking, is there something here? Or is there a good setup with good odds? Sometimes they’re not, sometimes the best trade is no trade but at least I’m looking if you’re always looking and you start seeing what plays work, over time you start adapting to what works and that’s what you need to do.
This is all about a game of adaptation. How quickly can you adapt to moving stocks, to moving markets? And you find what you’re best at but that’s a few lessons that I wish I would have learned.