How to make money in the stock market? Here are the 2 most reliable ways

Nick Sundich Nick Sundich, February 13, 2024

How to make money in the stock market? Simply put, it is to buy a stock, whether on the ASX or another exchange, and sell it at a higher price than you bought it for – ‘buy low, sell high’. You can also make money through dividends. That sounds easy enough, but how can you tell which stocks can re-rate and/or will pay dividends?

 

The 2 ways how to make money in the stock market

 

1. Buy low, sell high

As we noted above, the best way to make money from stocks is to buy low and sell high. How can a stock re-rate once you’ve bought it?

There are several factors that can cause a stock to rise. The most important of these is a company’s financial performance. When a company reports strong earnings growth, investors are more likely to buy the stock, leading to increased demand and higher prices.

Another catalyst that can cause a stock to rise is a positive news event. This can include anything from a new product launch or a strong earnings release to a major acquisition or partnership. Such news can generate excitement among investors and lead to increased buying activity.

Changes in market conditions can also impact a stock’s performance. For example, if interest rates are low and/or economic conditions are solid, investors may be more willing to take on risk in the stock market, leading to higher demand for stocks and higher prices.

Finally, investor sentiment can be a powerful catalyst for stock price appreciation. If investors are optimistic about a company’s future prospects, they may be more likely to buy the stock, leading to higher demand and higher prices.

Overall, it is important to note that stock prices are influenced by a complex set of economic, financial and psychological factors that can be difficult to predict or control.

 

2. Dividends

Dividends refer to the portion of a company’s profits that is paid out to its shareholders. They are usually paid in the form of cash, but can also be in the form of additional shares of stock. Dividends are one of the ways in which you can make money from stocks. It is important to note that will take you several years to generate a return from dividends alone, but they are a welcome return while you wait for your stock to re-rate.

Dividends are not guaranteed and can vary from year to year depending on the company’s financial performance. Some companies may not pay any dividends at all, while others may pay out a significant portion of their profits.

There are different types of dividends. Regular dividends are those that are paid out on a regular basis, such as quarterly or annually. Special dividends are one-time payments that are made in addition to regular dividends.

Dividends are an important source of income for many investors, particularly those who are looking to not just make money, but to secure a steady income stream. However, they are not the only consideration when thinking about how to make money from stocks. Other factors, such as a company’s financial health, growth prospects and valuation, also need to be taken into account.

 

What else to consider when looking to make money from stocks

Even with this framework understood, there are a few things you should keep in mind. First, it’s important to understand that the stock market can be volatile and unpredictable. However, with the right knowledge and strategies, you can increase your chances of success.

One of the best ways to increase your odds to make money in the stock market is to do your research. Don’t just invest in a company because it’s popular or because you have a gut feeling. Instead, study the company’s financials, management team and industry trends. Look for patterns and potential opportunities for growth.

 

Diversification, timing and investment horizon

Another important factor to consider is diversification. It’s never a good idea to invest all of your money into one stock or one sector. Instead, spread your investments across multiple industries and companies. This mitigates your risk and increases your chances of profiting from a rising market.

Timing is also critical. While it’s impossible to predict the market perfectly, keeping an eye on current events and market trends can help you make better decisions. For example, if there’s a lot of positive news about a particular industry or company, it may be a good time to invest. Conversely, if there’s negative news or a downturn in the market, it may be wise to wait or pull back.

Finally, it’s important to have a long-term mindset. While it can be tempting to try to make money through a quick profit, successful investing requires patience and discipline. Focus on building a strong, well-diversified portfolio over time, and don’t let short-term market fluctuations distract you.

In conclusion, it is no easy feat to make money from stocks. It is all about education, diversification, timing and having a long-term mentality. With these principles in mind, you can navigate the market with confidence and increase your chances of success.

 

 

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