7 Investing Lessons From “How to Make Money in Stocks”

How to Make Money in Stocks Summary

👇 How to Make Money in Stocks video summary 👇

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How to Make Money in Stocks Lessons

1️⃣ Understand the cup with handle pattern

Let’s talk about something crucial: understanding stock chart patterns, especially one in particular.

In the world of the stock market, some things stay the same no matter the time period.

There are winners that shoot up, losers that crash, and some that just kind of trudge along without making much money.

So, here’s the cool part – you can learn from how stocks behaved in the past and use that knowledge today.

Think of it like looking at X-rays or MRIs when you’re sick. Doctors use those to figure out what’s going on inside your body and treat you.

In the same way, by reading stock charts, you can figure out patterns that keep repeating. It’s like predicting the future, but with stocks.

Now, there’s this important pattern called the “Cup with Handle.” Imagine a stock going up for a while, then taking a little fall, making a rounded shape, and finally leveling off.

That’s the “cup.” It’s like the stock is getting ready for something big. If it has a strong base of supporters (investors who believe in it), it’s a good sign.

That’s when you should jump in – right when it’s forming the “handle.” Most of the time, the stock will shoot up after that.

Whether it’s Apple in the 2000s or Sea Containers in the 1970s, this trusty stock-market pattern has made investors a bunch of money over the years.

Next.

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2️⃣ EPS is the most important thing

Here’s a straightforward concept: if you want a good stock, you need to look for one that’s making more money.

Profitability is like the secret sauce for a successful business, and a successful business usually means its stock price is going up.

So, when you’re picking stocks, keep an eye out for the ones with big earnings increases. History backs this up – think about Google and Apple, two big tech names.

Before their stock prices shot up, they both showed a significant boost in earnings. Google had gains of 112 percent and 123 percent, and Apple’s earnings went up a whopping 350 percent!

Now, a little warning: be careful with companies that only talk about making big money in the future but don’t actually have the earnings to prove it.

Remember the dotcom crash? Lots of companies without real earnings took a nosedive. On the flip side, companies like AOL and Yahoo!, which were making serious money, didn’t suffer as much.

When you’re hunting for these money-making companies, focus on something called earnings-per-share or EPS.

It’s like figuring out how much profit each share of a company’s stock represents. Look for companies with big, steady increases in their EPS number.

But hold on, don’t base your decision solely on earnings growth. There are other things to consider, and we’ll get into that in the next parts.

But remember, the percentage increase in EPS is the most crucial thing to look at when deciding if a stock is worth buying.

Onwards.

3️⃣ Invest in innovative companies at the right time

Investing in innovative companies can be a smart move, but there’s a catch – you need to know when to jump in.

For more than 100 years, the U.S. has been a hub of change, bringing cool inventions to the world, from Edison’s lightbulb to Silicon Valley’s digital wonders.

Now, here’s the interesting part – companies that bring revolutionary ideas also see their stock prices go through the roof. Big returns and innovation often go hand in hand.

Innovation has a track record of causing stocks to skyrocket. Take Northern Pacific, the first transcontinental railroad, for example.

Its stock shot up a whopping 4,000 percent in just two years starting from 1900. General Motors’ new automobiles fueled a rise of 1,368 percent between 1913 and 1914.

Then there’s Cisco Systems, creating networking gear – its stock climbed a mind-blowing 75,000 percent from 1990 to 2000.

The U.S. keeps attracting innovators, so there are likely more opportunities ahead. If you missed out on companies like Apple or Microsoft, don’t worry; there will be others.

You just need to put in the work to find them in time.

Now, when is “in time”? Here’s the trick: great, innovative companies often keep growing way more than expected. So, don’t always follow the usual advice of buying low and selling high.

Take Cisco Systems as an example – it was already at its peak in 1990 before it surged by 75,000 percent.

A study even found that stocks hitting new highs tend to keep hitting them during good market times, and the same goes for stocks hitting new lows.

But, and this is important, there’s a right time to buy a stock. Look for signs like the “Cup with Handle” pattern, indicating the stock is ready to break out.

So, the lesson here is: spot great, pioneering companies and try to invest in them at the right time. Do that, and you’ll be ahead of the game.

4️⃣ Supply and demand is very important

Something important when picking stocks – supply and demand.

Think about it this way: when you buy stuff like toothpaste or cheese, the price depends on how much of it is there and how many people want it. This same idea applies to the stock market.

Now, imagine one company has issued 5 billion shares, and another has only 50 million. To make the stock price go up a lot for the one with 5 billion shares, you need a ton of people buying.

But for the smaller stock with only 50 million shares, it can shoot up way faster because there’s less of it available.

However, be careful because, just like it can go up fast, it can crash just as dramatically.

So, here’s the deal – a smaller company can give you bigger rewards, but it also comes with a bigger risk.

A company with more shares is less risky because it takes a lot more selling to make the price move.

Now, who owns these shares matters too. In both big and small companies, it’s a good sign if the big bosses (top management) own a good chunk of the company’s shares.

If they don’t, they might not care as much about the company’s success, making the stock not so great for your portfolio.

If management owns at least 1 to 3 percent of a big business, and more in smaller ones, it’s usually a better investment.

One more thing to keep an eye on is when companies buy back their own stock.

This is a positive sign because it means the company believes it’s going to make more money soon, and that makes their stock more valuable.

Onwards.

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5️⃣ Buy the leaders in the space

It’s always a good idea to buy the big players in an industry.

We all have favorite companies that we love, like Coca-Cola or Nike. Usually, these are the ones we think about investing in.

But here’s the deal – in a booming market, these old favorites might not be the best choice. New and dynamic leaders can sometimes outshine them.

So, the rule of thumb here is to buy the leading companies in their group.

Now, a “leading company” isn’t always the biggest or the most famous; it’s the one with the best earnings and sales growth, high profit margins, and a strong return on equity.

They also usually have a cool and innovative product that’s driving their success.

The author’s own big winners over the years were always the ones dominating their spaces, like Pick ‘N’ Save, Amgen, AOL, eBay, and Apple. They were all number one in what they did.

In the bull market of 1979 and 1980, the most dynamic companies at the time – like Wang Labs, Tandy, and Datapoint – saw up to sevenfold increases.

Meanwhile, the reliable old giants, like IBM and Burroughs, didn’t move much. Just because they were reliable didn’t mean they brought the same big returns as the leading companies.

Here’s a tip: always avoid the second-best or the copycat company. The leader usually outperforms them.

Sometimes people invest in the second-best hoping it will catch some of the leader’s success, but that hardly ever happens.

Remember what Andrew Carnegie said: “The first man gets the oyster; the second, the shell.”

It’s the real innovators and entrepreneurs that drive the market, and those are the companies you should consider investing in.

Next.

6️⃣ Buy stocks with high institutional ownership

it’s smart to look for stocks that big institutions support.

Instead of buying individual stocks, some investors put their money into funds, like mutual funds in the U.S.

These funds are managed by financial experts who pick a bunch of different stocks for the fund.

Now, here’s the interesting part for individual investors like you – it’s worth checking out which stocks these experts have chosen.

Big institutions are a major force in the stock market, driving prices up or down. So, if you own shares that these big institutions are buying, your stocks are likely to go up too.

Now, focus on the best-performing funds – the ones giving the biggest returns and managed by smart investors.

You can find this info in places like Investor’s Business Daily and Morningstar.com. Morningstar.com also lists the top holdings of these mutual funds.

The investing philosophy of these institutions matters too.

You can learn from the best by checking their prospectus, which is like a guide that tells you how the fund works and what kinds of stocks they’ve picked.

However, a little caution here – some stocks can be “over-owned” by big institutions. They might buy certain stocks automatically, even if the stocks aren’t doing well.

For example, in the 1970s, Xerox was a favorite of institutions, but some sharp analysts noticed the company wasn’t doing great, and soon the stock went down.

So, the lesson is: learn from the experts, but also do your own homework. Nothing beats doing your own research.

Onwards.

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7️⃣ Keep an eye on the general market direction

It’s crucial to keep an eye on the overall direction of the stock market.

Here’s the deal – individual stocks matter, but only up to a point. If the whole market goes down, your stocks are likely to lose money.

Remember the 2008 crash? No matter how good your stock-picking skills were, if you didn’t sell in time, you lost money. In a downward market, three out of four stocks usually lose value.

So, what’s the “general market”? It’s like a summary of all the big stock indices, such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite. You can check these online.

To understand the market mood, look for signs of significant buying or selling.

Investor’s Business Daily often has something called an Accumulation/Distribution Rating, telling you if investors are buying or selling in a particular index.

This helps you know if they trust the market or fear a drop.

Keep a close eye on these indices because things can change in just a few weeks. If you’re not paying attention, a sudden crash could wipe out your returns.

For example, if stocks consistently open high and close low, it might be entering a bear market where prices fall.

On the flip side, if stocks open weak and close strong, it could be the start of a bull market. Daily observation is key – without it, you might miss these shifts.

Avoid getting too caught up in financial analysts or newsletters. Often, they can just confuse you with conflicting opinions.

The best strategy is to observe the market itself, kind of like studying tigers by watching them in their natural habitat. The same goes for the unpredictable “wild beast” – the stock market!

How to Make Money in Stocks Review ⭐️⭐️⭐️⭐️☆

In conclusion, the central message conveyed in these insights is the importance of preparing before delving into the stock market.

Acquiring the skill to interpret stock-price patterns, with a special focus on the valuable “Cup with Handle” pattern, is essential.

Beyond patterns, the prudent investor should ensure that the chosen stock aligns with fundamental criteria – being an industry leader, ideally offering innovative products or services, and, significantly, exhibiting consistent earnings growth.

Additionally, keeping a keen eye on the strategies of top fund managers is advisable, but this must be complemented with diligent personal research.

As for actionable advice, a crucial aspect of successful stock investment is knowing not only when to enter but also when to exit.

Implementing a disciplined approach, consider selling a stock if it experiences an 8 percent drop from your initial purchase price.

This strategy serves to mitigate losses, offering a safeguard while pursuing substantial gains.

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🔥 Daily Inspiration 🔥

 But they who wait for the Lord shall renew their strength; they shall mount up with wings like eagles; they shall run and not be weary; they shall walk and not faint.

— Isaiah 40:31