ABC's of Investing in Stocks

Hey people,

At your request this blog is for those of you who are looking to make your first investment in stocks and for those who are invested but do not understand some of the basics that can make you more money in the future.

First you should find out:

What is your investment objective?

1. Safety - Your objective here is to avoid loss of original capital invested

2. Income - Your objective here is to have a steady flow of interest or dividend income

3. Growth - Your objective here is to find common stocks with future long term growth

Note: Establish your investment goals and determine how much risk you are willing to take before you do anything.

When looking at common stocks to purchase, you should be aware of the different types of common stocks.

Types of Common Stock

1. Blue Chip Stocks - Long-term and stable earnings with dividends. Also known as a high Quality Company.

2. Income Stocks - Consistent dividend yields. Preferred shares should also be looked at for income.

3. Growth Stocks - High operating margins and an excellent inflow of cash to pay debt.

4. Speculative Stocks - Shares are extremely risky, potential to rise or drop significantly

5. Cyclical Stocks - These stocks tend to move with the economy, eg. Coca cola,  Mcdonalds

What are preferred shares?

Preferred shares are shares that have no ownership in the company, Therefore you cannot vote on certain things that common shareholders do. You are, however paid a rate of return (Yield) which is a share of the companies earnings. Preferred gets paid before Common, but the appreciation for Common tends to be greater.

Markets Terminology 101:

Bull Market - Stock prices are going up

Bear Market - Stock prices are going down

Price Earnings Ratio or PE - good way to find the valuation of the company. During the dot com bubble stocks were trading at 30 times earnings.

Yield - The percentage of how much money the company pays out to shareholders in dividends.
Mr. stock pick likes big dividend yeilds.

Bid - The highest price anyone is willing to pay for a stock
Ask -The lowest price anyone will accept to sell a stock

I hope this helps, if you are still unsure of what something may mean or if you have a question about something I didn't cover, please feel free to email me directly through the blog.

In the mean time I hope you are making money this week!(Even though I am long-term, money now means more money later)

I recommended Bank of America (BAC) on Tuesday at $14.70 and it is currently trading at $16

GOOG at $535 and it is currently trading at $542. Not a bad week I might say, for the bulls.

Have a good weekend,

Mr. Stock Pick