If you listen to the financial press, as a beginner you might be tempted to think that making money is about investing in the right stocks, rapid trading, spending countless hours glued to your computer and obsessing about what is happening in the markets. In reality, the secret to boosting your funds in the stock market lies in owning and holding securities and benefiting from their increase in value.

Making Money from Stocks

The two possible ways to make money here is when an owned stock appreciates in value and if the company that owns the shares decides to issue dividends. When there is an appreciation of stocks, it means the people who want to buy it assume that a share is worth more than is paid for. Normally, this will happen when the company that issued you the stocks has improved earnings. Holding a stock that has already gone up in value is termed as an unrealised gain. Selling the stock during this time means you have finally locked in your gains.

A dividend, on the other hand, is when the company you buy stocks from gives a payout. Normally given after every three months, dividends offer you as the shareholder returns, no matter the state of the stock price. These are common in established companies and are not guaranteed, meaning the company can stop paying you at any time. Instead of spending the dividends each time they are paid to you, it is advisable to reinvest them.

Price Action

For you to make profits in stocks, the two strategies you can embrace are value investing and momentum trading. Value investing is about trading in stocks that have lower prices than their intrinsic value. As a value investor, you only buy stocks at a discount hoping they will grow to achieve their intrinsic value. Some investors do not look at the future growth but the current assets and growth. Others factor their strategies around the future growth estimation. Whatever the methodology, investors are advised to invest in less than what they think a stock is worth at the moment.

Value stocks normally have bargain prices since the companies are viewed as unfavourable. Because stocks are undervalued, it is easy to make profits. Momentum trading is about focusing on stocks that are moving in the same direction on high volume. Here, investors look for the acceleration of revenues and earnings of the stocks. They then take a short or a long position, hoping that momentum will continue in an upward direction. The time that they hold their position in the market depends on how fast the stocks move.

Seizing the Opportunity

It is important to analyse the market critically and grab the opportunity while it still lasts. Note that waiting too long is as dangerous as hastily getting into the stock market. Before purchasing a stock, review a company’s financials critically and make comparisons with its competitors. Once you a have a fall-back plan, it is time to invest. If a company’s stocks have low pricing, for instance, find out why.

How should you Buy Stocks?

Most investors use brokers to buy stocks. Brokers trade stocks on behalf of traders. They come in two variations, including discount and full-service. Discount brokers complete transactions for the trader at a reasonable price. Normally, they tend to charge less for every share in large trades. Full-service brokers manage a trader’s portfolio and offer advice. Today, there are multiple stocks to choose from. Looking at stocks in that form allows you to diversify. Size focuses on a company’s capitalisation, which is the amount that an investor thinks it is worth. Style focuses on growth and value. Growth stocks tend to have a higher potential in good times, and when growth slows down, they go low. Value stocks are steadier and slower and have strong fundamentals.

While it is possible to make huge amounts of money in the stock market, it is also very easy to lose if you are not clear on what you are after. Before taking action, research widely, apply patience and discipline, have a clear understanding of the market and give yourself time before swinging in. Be sure to invest in a business you understand. Before investing in any company, first know what kind of business it is involved in.