How to Make Money in the Stock Market

Making money requires work - even in the stock market. Most successful investors study a variety of sources and ask a lot of questions.

Instructions

Step 1 Shop for undervalued companies.

Step 2 Find stocks that have price-earnings ratios significantly lower than those of their peer group.

Step 3 Watch for bad news. Wall Street often overreacts to bad news such as missed earnings, which will drive a stock lower than it should go.

Step 4 Pick the jockey, not the horse. Find out who is running the company and where the executives worked previously.

Step 5 Look for strong balance sheets. Companies with low debt loads, positive cash flow and consistently good earnings are good prospects.

Step 6 Check out the portfolios of successful mutual-fund companies. If they are getting great returns year after year, they are holding stocks you might want to buy.

Step 7 Know when to cut your losses. You want to invest for the long term, but you don't want to stick with a consistent loser.

Step 8 Work hard. Do research. Read financial news. Study quarterly and annual reports as well as registration statements, looking for trends and opportunities.

Step 9 Grill your broker. If the broker is recommending XYZ stock, ask for a detailed explanation, with an eye to growth prospects and historical performance.


Tips

-Go online. Dozens of Web sites offer financial news, advice and analysis.

-Use a discount broker, not a full-service broker, if you know what you are doing and you have time to execute your own trades.

Trade stocks for free through Zecco.com, the Free Trading Community. www.zecco.com


-Check out freeedgar.com, which offers registration statements, quarterly and annual reports, and other SEC documents online - all for free.

-Take advantage of the employee stock ownership program at your place of work, if your employer offers one. You can buy your company's stock at a discount.

-Full-service brokers make money on activity, not on the quality of their trades, so don't assume your broker is always working in your best interests.


Source - http://www.ehow.com/how_14735_make-money-stock.html