Advantages and Disadvantages of Stock Investment
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Advantages and Disadvantages of Stock Investment

Investing is quite a trend in today’s life and almost everyone knows about investments and uses the money for investing. Investing also means that you put your money and let them work for you.  People are interested to invest their money in order to gain profits since the future is unpredictable and so are their financial situations. There are so many choices to invest and the popular one is stock investment. Stock market is one of the potential places to invest money. It may offer great gains as well as losses. Yet, if an investor can manage the stocks, there are many advantages which can be obtained such as secure the financial position and also earn money.

The main benefits of investing in stock market is the chance to get more money. Investing in a company that is stable and growing can give more profits to the investors. Stocks offer two kinds of benefits, capital gains and dividends. Capital gain is the appreciation of the stock’s value when the company becomes more valuable and so is the ownership interest represent by each share of stock. Dividend is the excess periodic profit distributed to shareholders when the company earns more profit which more than it requires to support its maintenance and growth. In addition, stocks offer very high returns compared to other investments. Stocks are also liquid type of investment because they can be sold and bought quickly at fine price.

Building wealth through stock market can be done through multiple stock investments. It means that investor can put their money to different types of products. Investing in various sectors of economy may result in a profit even though other investment products lose value. This way, the investors can prevent from losing their money compared to those who put all their money in one product only.

Purchasing shares of stocks means that investors are taking a part of the ownership in the company. It means that each shareholder is the partial owner of that business.  Shareholders have the rights to vote on corporate board members and certain business decisions. For the passive stockholders, they are offered limited legal liability.

On the other hand, stock investment may also give disadvantages for the investors. Shareholders are the last to get paid which means that they get the remaining money after all the employees, taxes, and other company’s necessities have been paid. Moreover, the shareholders may get very limited information about the company’s book. Most of them do not even know about the company itself which make them often confused in the decision-making investment.

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How to Pick Good Stocks
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How to Pick Good Stocks

Choosing stocks to be purchased can be a tricky task especially for beginner who knows a little about stocks and stocks market. Before deciding to buy stocks, investors should know how to find good stocks which can give long term benefits for them. Many investors depend only on the number shows by the statistics of the companies’ financial statements. Using quantitative analysis indeed is a good way to know the performance of the companies. However, it is merely numbers which cannot completely reveal the actual condition happens inside the company. Therefore, investors should investigate the quality of the companies as well. By using the quantitative and qualitative analysis simultaneously, it may help the investors to find the good stocks. Qualitative analysis may consist of management, business model, competitive advantage, and popular opinion.

Management is the very first factor to be considered as a good company will be run by a good management team. Investors should find out who on the management team such as CEO, CFO, COO and CIO are. Next, investors should consider about the educational backgrounds and previous experiences. If the team consists of people who have unrelated background to the business, investors have to concern about it whether they will be suitable and can make a good management in the future. Afterward, take a look into their operational philosophy. Some businesses run with a transparent, adaptable and more flexible way while others can be more rigid and tend to valuing policy. The management philosophy can be seen at the annual report’s management, discussion & analysis (MD&A) section.

Business model deals with the company’s ability to generate profits and revenue from operations. Investors have to know about the companies’ activities so that they will know whether the stocks will give profits. It is important to be truly sure about the future of the companies based on the business model.

Competitive advantage is about the growth potential of the company. The significant thing to be considered is whether the company is in the right industry and can be profitable. Promising business often dominate the industry because the entry to the market is hard. It is proved by few companies which dominating their own sector industry, for example Google.

Popular opinion may affect the judging of company since the public opinion can give impacts to the stock’s value. This factor also may give influence to the investors. They believe that a company which has better public opinion has loyal consumers which can ease the company is expanding its operation. Popular opinion sometimes goes along with the popular brand names. Yet, picking a popular brand name is not always a good choice because if there is a bad news regarding that particular name, the stocks’ price will be affected even though it is not related to the company’s performance.

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Choosing A Trading Style
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Choosing A Trading Style

Every trader has his own trading style and differs from one to another. Deciding what styles that best suit for a new trader can be a difficult task because it is one of the factors that determine whether he will be a success trader or not. According to Investopedia, active trading is the act of buying and selling securities based on short-term movements to profit from the price movements on a short-term stock chart. There are four active trading styles that commonly used by the people namely position trading, swing trading, day trading, and scalp trading. Basically, the styles are based on the length of the trading itself.

Position Trading

Position trading is a long-term trading which is most suitable for those who are patient and consistent. The trade is usually going for a long period of time or years. It is more like “buy and hold” trading rather than active trading. It involves fundamental analysis and often ignores the short-term fluctuations. It uses a long-term chart for daily, weekly, to monthly and some other methods to determine the higher and lower high of the trend of a security.

Swing Trading

It is usually held for more than a day but not longer than the trend trades. It often holds overnight. Swing traders usually have their own algorithm to decide when to buy or sell their securities. They usually buy or sell their securities at the end of a trend when there is price volatility. This style is not suitable for people who cannot be at ease while they are away with their computer.

Day Trading

It is well known for active trading style. As its name, the buying and selling securities happen in a day that is why it is also known as intraday. There is no position which is held overnight. They are usually closed if the profit target has been reached. Day trading counts on small gains to build profit. This style is suitable for people with type of personality which want to start it at that day and finish it at the same day too.

Scalp Trading

This style is compatible with people who are impatient since it requires rapid activity in the trading. It last only few minutes to hours. Since it lasts for a short period of time, the scalp traders usually are people who can make a quick decision and have good focus as well as concentration. The commitment goes along with the time devoted to the trading; the shorter time frame, the more dedication needed.

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