Make Money By Value Investing!

First of all, before you even invest in stocks, you must understand what stocks are. Think of a company as a beach: There are millions (zillions?) of sands on the beach. So all the sands make up the beach. Stocks are just like the sands of a company: When you buy stocks, you buy some of the sands!

Okay, that analogy may be one of the worst you have ever seen, but you get the idea eh? So who define the price of the stocks? That is too technical for me to explain here in details. Basically, how profitable a company is will define the price of its stocks.

Anyways, we are more interested in make money via value investing. What is value investing? Let's use our kiddy method to explain once more. Let's say the price of a computer goes up and down within a week, somehow controlled by a crazy boss. On Monday, the selling price is $1000. On Tuesday, the selling price is $1500. On Wednesday, the selling price is $300. Thursday is $500. Friday is $1200. So, on which day will you buy the computer?

Okay, so you bought the computer on Wednesday at $300. You can sell it off at $1200 back to the crazy boss on Friday. If you do that, you'll have earned $900! The main thing to remember is, the computer is worth more than $300. In fact, it worth more than $1000: So for the boss to sell it on Wednesday at $300 is a grab!

In value investing, the same logic applies: You buy a cheap stock that should worth more than its selling price, and then sell it off when the stock price goes back to its normal price. In reality, the computer shop doesn't exists, because no boss will sell a computer worth $1000 at $300. But in the stock market, it is possible!

We will use a popular stock, Microsoft, as an example. Currently, the stock price is at $30.45. This is what we'll call it as the "market price". What if one day, something global happens (worldwide financial crisis), and the price of Microsoft dropped to $20? That is when value investor come in and buy when everyone is selling to cut loss. For more in-depth information on when to buy (looking at the support and resistance line, the uptrend and downtrend etc...), you may want to do more research as what we suggest here is only the basic!

Once you had bought the stocks at $20, it's time to wait for it to go back to its normal price. Think of the computer shop and the computer: You just bought a high-end computer at a cheap price ($300). Surely the price will not drop any further? If yes, then it will only be minimal. But the chances of selling the computer at $1000 are very high! Just like selling the stocks at more than $20 is high!

But what if the company's stocks keep on decreasing without bouncing back? It is very unlikely: Big companies (we call them blue chips) seldom goes bankrupt. It is not everyday - no, correct - it is not every year that you see big corporation going bankrupt. If it does, you'll lose a lot; and you witness the fall of a giant!

So sit back and - no, we are not going to ask you to invest right away - do your research now. Read up books on value investing and on stocks. Once the market collapse, take your money and pump in for value investing; that is, when you are ready!

Free Moneymaking Ideas Articles!
Written by Experts, for Basics!
http://www.buymoneywithmoney.com