Investing and trading in the stock market can be profitable using a variety of methods and techniques. A lot of investors tend to think trading a high volume or a high-priced stock while the markets are in an upward or downward trend is the only way to make good money. However, looking for high flying or fast moving stocks isn’t the only way to trade profitably. In fact, this method can lose you a lot of money very quickly. The timing of your trades and the stock picks must be done almost flawlessly in order to produce decent gains. However, this can be quite difficult in today’s age of high frequency trading, making this method a possible recipe for disaster.
There are other methods of investing and trading which will allow you to make a more steady income without having to trade large volumes or making risky investments. If you want to set up your investing so that you can generate more of a passive income from it, and/or steady returns, there are a few things you should do. First and foremost, it is critical that everything is set up carefully and correctly. You must still watch your investments and trades, because if you don’t monitor them, your returns may be lower than what you expect. Even worse – your investments and trades may even make you lose your hard earned principal, if not watched carefully. Don’t think that you can just walk away from your investments even though they may be classified as stable investments. It is still important for you check them on a regular basis.
In order for you to use the stock market to make some passive income and/or steady returns, it is very important that you begin by taking on more of a value investing approach to look for bargains in under-priced, beaten down stocks. When looking for bargains in the stock market, it isn’t very helpful for you to buy stocks that are priced too high for you to generate a steady return with. Instead, you want to focus on taking the time to do some fundamental research so you can purchase good stocks at bargain prices, in an effort to make steady returns and income.
Using this approach, the stocks you do want to focus on are the ones from solid performing companies, but where the stock price has fallen below the value where the market believes the stock should be. When you find such stocks, there is one more important component – you need to do some due diligence to find out why the stock price is lower than what the market believes it should be. Just because the price is lower than what the market believes it should be, doesn’t mean you should just jump in and buy it. Heed our advice very carefully – you must do some additional research to find out why the stock is priced lower than it should be. If you don’t take this warning seriously, you can lose a lot of money on what you thought was a good deal. However, if you do put in a solid amount of work into researching your potential purchase, including looking into why the stock is currently undervalued, current economic and industry trends, and the overall health of the company, you will be able to find some really great bargains to trade and invest in.
When doing your research, you should first start by looking at the latest performance of the major industries throughout the economy. This is important, because you want to see how the overall industry is doing relative to the general economy, as well as against other industries. It is here, you will be able to get a sense to see if the industry as a whole is undervalued relative to its peers, and if there may be some bargains to be find within the
industry under analysis. By understanding the developments within the industry, this will provide you with a general sense of how industry trends are affecting the companies you are looking to invest or trade in. Further, by looking into the potential company’s industry, you will also get an understanding of how industry participants are doing relative to their industry, as well as against one another.
After selecting an undervalued industry, the next step is applying valuation metrics to screen for companies that may have bargain potential. To do so, you want to look for companies that have the following characteristics:
A price-to-earnings ratio of 10 or less;
A price-to-sales ratio of less than 1; and/or
A price-to-book ratio of less than 1.
When you find a stock with these characteristics, this indicates that the company is currently undervalued relative to the industry and its peers, and could be a possible investment bargain. Do not ignore these conditions, as they are very important in making sure that the stock you are going to buy is going to be a good investment. You will not find these conditions very often, but when you do, you will want to buy a considerable amount of stock to make it worth your while.
Overall, when you find a good bargain stock, make sure that you buy the stock that has the highest relative value with lowest the PE. This will give you the most “bang for your buck” in terms of bargain investing. You also need to do some research on the company and its stock to make sure that it is a good buy. Financial websites, such as www.finviz.com and www.tradingview.com, are a very good place to look at the recent activity on the markets and stocks, as this will help you to get a better view of what is going on with the financial markets and your investments. It is only after you have done all of your research, and made sure that all of the conditions are right, that you should buy. If you do this, then you will be doing yourself and your portfolio a favor, by making sure that you have the best, and cheapest chance, of making a good return.