To make money in the stock market, you have to start with big money, right?
Well, no. Contrary to conventional wisdom, you don’t need to have a hefty trust fund or ultradeep pockets like mutual funds and other institutional players to start investing.
“If you’re a typical working person or a beginning investor, you should know that it doesn’t take a lot of money to start,” IBD founder William O’Neil wrote in “How to Make Money in Stocks.”
“You can begin with as little as $500 to $1,000 and add to it as you earn and save more money.”
O’Neil’s First Investment
In fact, O’Neil started his investing career at the ripe old age of 21 years with just a five-share purchase of
Procter & Gamble
What’s more important than how much money you have to start investing is learning how to pick the best stocks. Stocks have the potential for big gains if you know which ones to pick at the right time. There are two components to the right time: the stock itself and the overall market.
A stock could sport top-notch fundamentals, such as high Composite, Earnings Per Share and Relative Strength ratings. Use
as a guide. The company may clearly be a leader in its field, but it’s prudent to wait until the stock is breaking out from a
in rising volume.
Doing so boosts your chances of snaring a profit.
Start Investing With Just This Amount
To further raise the odds of a big run-up after a breakout, it’s best to buy when the
market is in a confirmed uptrend
. Three of four stocks will eventually follow the market’s direction, so it doesn’t make sense to buy during a correction or when the
market is under pressure
Always read The Big Picture column
so you can stay on the correct side of the market.)
Let’s say you have $500 or $1,000 to start investing. Don’t try to reduce risk by buying 10 stocks. Concentrate instead on one or two potential winners. With $10,000, stick with three or four good stocks instead of a basket of names.
Suppose you have $10,000 and invested $5,000 of it in
) at its July 2013 breakout from a
e. If you had bought shares near the
correct buy point
at 32.61 and held the position through mid-April in 2016, you would have gained 240%, or $12,000. Not a bad gain.
How about putting another $2,500 to work in Reynolds American (now a subsidiary of British American Tobacco) as it cleared a base — a
with a 52.67
ideal buy point
— in March 2014? With an 85% profit (excluding dividends), that wad grew to $4,625 just a little more than two years later.
If the remaining $2,500 went to the airline operator
) at its Oct. 22, 2014, breakout past a 16.18 buy point in a
superb double-bottom base
, shares would have soared 210% to $7,750 less than two years later.
A Big Overall Profit
That initial $10,000 would now be worth $29,375. If you kept your losses in other stocks at no more than 7%-8% for each trade, you would be able to keep a lot of those profits. Always practice
the golden rule of investing
It’s never too early to start saving or learning to invest. The younger you are, the greater the chances to grow even a modest amount exponentially, as explained in this
A version of this column was first published on April 15, 2016. British American Tobacco acquired Reynolds American in July 2017. Please follow Gondo on Twitter at @IBD_NGondo for more analysis on top ETFs and growth stocks
This is is a syndicated post. Read the original at www.investors.com
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