It’s something of an interesting concept.  Whether stay at home mums (or moms if you are reading this from the U.S.) should invest in the stock market or not.

Now personally I’m biased because I both am a stay at home mum of two AND I love investing in stocks – but sometimes I wonder if I’m the minority.  Many of my other SAHM friends think the stock market is a gamble, something that’s akin to betting on horses.

I disagree of course.

Other’s say it’s just for grey old men in pin striped suits or cocaine fueled twenty something’s from Wall St.

Again I disagree.

I believe that investing is for anyone (and everyone).  And even home makers like me.

First a bit of background so you know where I’m coming from.

Me

I was slightly geeky in school (I liked maths and science) but still popular enough to get invited to all the cool parties.

I always had an entrepreneurial streak (or stubborn independent spirit as my mum used to call it).

And since I grew up in a rather ‘poor’ family – my mother was a single parent living on welfare I was determined that this would not be my fate.

So I was always interested in money – or rather how to get money.  Legally of course.

Obviously that meant I had to go to University and get a ‘good job’ then right?  S0 that’s what I did.  Uni was fun but all those boys and parties were distracting.

I studied Journalism and Media Communication and though that being a TV news presenter would be the absolute coolest job on the planet.  That didn’t eventuate.

After uni, apart from a brief stint in PR, a fell into boring secretarial type roles.  Nobody seemed to want to take a chance on me.  So I got stuck as an admin assistant.

Look there is nothing wrong with being an admin assistant – but it’s not exactly a dream career is it.

I wanted more.

And being a geeky maths chick (albeit a cute one) I thought the stock market might be a good try.

And god damn I turned out to be good at it!

In fact I was able to leave my job after five years with the money I had accumulated in stocks.

I’ve not had a full time job since.

Of course I still live quite frugally, but the point is I don’t have to get a j.o.b.

God that sounded just like some infomercial didn’t it.

Sorry.

Didn’t mean it to sound like that, just wanted to let you know where I was coming from.

You

So anyway where was I (yes I do tend to ramble).

Oh that’s right.

Can stay at home mums (or dad’s – let’s not discriminate here) make money by investing in stocks.

Yes.

But not overnight.

It’s going to take some time.

You are going to have to learn a few basic fundamentals like Return on Equity, Earnings Growth and stuff.

Luckily it’s pretty easy once you get the hang of it.

I’ve gone over the basics in this post, like how much you need to get started (hint: $5,000 minimum).

And how you can diversify your portfolio, what to expect the first time that you invest, the price you should buy at, and even tips on what to do if the stock price goes down.

I’ll be including a lot more tips over the next few months as well.

They’ll all be free too.  Of course!

Us women (and stay at home mums) have to stick together.

To our (your) success.

Tracey

OK, so I have no idea how it ACTUALLY works (apart from providing an exchange whereby investors can give money to publicly traded companies in return for part of their assets and profits).

But I do know how the stock market works in terms of us making money from it.  You know the whole buy low, sell high, do a happy dance thing.

So that’s what I’m going to focus on in this article: How it works in a way that you can profit from it.  Coolio, let’s get started.

Now I’ve already mentioned that you need to know which companies that you want to invest in by doing a bit of research to find those excellent stocks likely to give you a nice return.  You can learn more about that here.

I also mentioned briefly that we like looking for stocks that have high dividend yields as well.  Although high divs are more of a bonus than a necessity.  But I still think it’s good to keep a few high div yield stocks in your portfolio anyway to diversify.

How do you make money in the stock market?

You can actually make money a number of ways but probably the most common for regular investors is to buy shares of a stock at a certain price and then when it rises in price sell at the higher price netting you that profit.

There are other ways too which involve short buying and selling, naked buying and selling, buying just for dividend income, buying warrants and options and so on.  But let’s keep things simple because I don’t think it has to be complicated for you to make money.

And since I assume you don’t want to keep your eyes glued to the Bloomberg Channel for every little movement up and down in the market I would think that the majority of your investments should be based on long term stocks.

So that’s it then.  Buy low sell high.

Well yes basically that IS it.  Although it’s not always quite as easy as just picking any random stock and buying it.  You do need to put some thought into what you are going to buy first.

And that means looking at the financials (or fundamentals) of the company to make sure they are sound and the company is happily making a good profit for its shareholders.

But what if the stock price goes down?

It happens.  Especially in the turbulent times like we are currently in.  But if the financials remain good then there is no reason to panic sell.  We are nearly at the end of this cycle of the stock market fall and while there should be a few bumpy months ahead over the next twelve to eighteen months as they say “This too shall pass”.  The economy will recover and stock prices will rise again.

Besides if you want to look at it the other way, right now there are some great companies at bargain basement prices.  When the stock price recovers, you could be doing very well indeed if you choose wisely.

But of course that isn’t to say that the stock you choose will recover at all.  Perhaps you bought on the advice of someone else or just chose randomly because you liked the company?  Perhaps it isn’t going to ever recover?  In that case putting in place something like a stop loss (a price point where if it falls to this you cut your losses and get out immediately so you don’t lose any more money).

That stop loss could be a percentage below your initial investment (such as a fall of 15%), or it could be a particular price such as if it falls below $10.00.

Having that ‘insurance policy’ allows you to get out before any real damage is done.

Of course you have to be realistic and know that stocks jump around all the time and you don’t want to get out too early if it’s just moving normally, so knowing the volatility of the company you invested in is important (you can find this just by looking at it’s stock price chart and seeing what’s normal for that stock).

So let’s summarise what we’ve talked about so far:

• To make money (in it’s simplest terms) you buy low and sell high.
• There are other ways to make money including buying stocks for dividend income.
• Choosing good companies with strong fundamentals can help improve your chances of picking winners in the market.
• Having a plan, such as setting a stop loss up, can help minimise your losses if your stock price is falling.
• However you need to be aware of the share price history to see if the ups and downs you are seeing is normal or not.
• And that’s it really.  That’s how the stock market works in terms of making money from it.

See I told you it was simple.

As I’ve mentioned many times before, I firmly believe that with a tiny bit of knowledge any one can invest in the share market.

All it takes is a bit of guts and some money to get started.  Of course I’m not saying that you should go in completely blind, you do need to know what your investment strategy is before you start, but generally I think it’s perfectly legitimate for beginners to get their feet wet.

After all, taking action is the best way to learn.

But to speed up that learning curve I thought I’d give you some share market tips for beginners so that you can be investing like a pro in no time.

Have enough money to invest

You’ve got the cash to invest don’t you?  Awesome.  Depending on your budget you probably want to start with at least $10,000.  Sure you can start with much less than this and in fact I only started with $1,000 but it was a hard slog trying to build this up when you take into account brokerage fees and the like.

Besides $10,000 will give you enough to invest in two or three different companies so that you can diversify your portfolio.

Diversification

Speaking of diversification it’s important that you do buy into more than one company.

The reason being is that not all stocks rise in price.  I know shocking isn’t it.

So you want to spread your risk over a few different companies so that if one falls you might be covered by the other two (or more).

This is actually one of the key strategies to making money in the stock market – since not every share that you pick will be a winner you need to let the winning stocks take the slack of the losing stocks.

Generally it seems (or at least it does for me) that for every five companies that I invest in, one of them will fall, one with rise and the other two or three will do not much at all and just jump around at the same price.

So you need to cut the losers and keep the winners.  Of course you never know ahead of time which stocks are going to make you the most money so you need to invest in a few to find out.

Buying Good Companies

Now of course you can minimise your risk a bit by only choosing companies that have good strong fundamentals.  Specifically I like to look at those companies with a high return on equity, positive earnings growth and low debt.  Doing some research up front will allow you to choose companies that are more likely to do better in the long run.

That means of course that you are going to have to get familiar with looking at the research pages of the company as well as the stock chart.

Just a quick glance at the stock chart will usually give you a good picture of what direction the share is currently heading in.  And while there are many strategies that try to determine if a stock is about to turn around so that you can get in at ‘just the right time’, personally I think all you need to know is if it is rising in price, falling, or remaining stable.

Which shares should you buy?

If you are just a beginner (and you probably are if you are reading this post) then I’d recommend you stick with those companies listed in the top indexes in your company.  So that’s the All Ords in Australia, Dow in the US, FTSE in the UK and so on.

That way you are dealing with the larger companies by market capitalisation that have *usually* been around longer and have a history that you can look at.

How much money can you make in the share market?

Err, lots or none.

That’s a hard question to answer.  Generally over the long term the share market is a safe option with returns averaging 10% or more over a term of ten years.

But in the short term, as you are no doubt aware, people can also lose their money in market crashes.  Of course if people didn’t panic sell when their money bottomed out they wouldn’t have lost all that money (the market is just about back to where it was before it fell) so waiting out these crashes is the smartest thing to do.

But that’s not to say you should never sell out.  If a company is no longer performing well and it’s fundamentals are no longer good then it very well could be time to jump ship and find better opportunities.

That’s where a bit of experience will come in.  So you can recognise when it’s time to get out or wait it out.

And only that will come from experience.

Learning the Stock Market doesn’t have to be difficult.  I’m serious.  I know many people want you to think it’s complicated and that beginners couldn’t possibly make money unless they do a finance course but I’m here to tell you that anyone can invest in stocks.

Beginners, dummies (even though I hate that term), men, women, my cat.  Ok, perhaps not my cat.  But you get my point.

So where do you start.

Do you have enough money to invest?

Well we better start at the ABSOLUTE beginning if you want to learn to invest in the stock market and that means you need to have a few things in place.  Like, um, the money you want to use to buy stocks.

You do have that right?

I suggest you have at least $5,000 if you are serious about getting started.  Sure you can start with less than this, but it’s good to have enough so you can hold a good amount of stock in the company and not just a few hundred here and there.

If you have more than that’s even better because you can diversify your portfolio even more by buying more companies.  (I have a great plan for diversifying your portfolio which I’ll talk about in a later post).

So you have at least five grand, preferably more.  Cool.

 

Do you have a brokerage account?

You know, some place where they let you buy shares in a company.  I’m sure you do.   But I have to check right?

But just in case you don’t, that should be the next thing you do before you even start researching which companies are best.  There are plenty of good online brokers to choose from.  Your bank probably has a company or two that they suggest to customers so that you can trade right from your regular bank account.

Just make sure that it’s convenient, easy to use and the brokerage fee’s are small.  Ok.

So now you are cashed up and ready to invest its time to buy some stocks!

 

What are you going to buy?

If you don’t have a lot of time for research (or it scares the bejesus out of you) then you could go the easy option of buying mutual funds instead of investing directly in stocks.  It’s really up to you.  Both have their advantages and disadvantages and many people would prefer to let the fund managers make all the decisions.

Personally though I love the thrill of choosing my own companies and watch them ride up and down the wave of the stock market roller coaster (and try not to throw up on the way down).  Generally though over the long-term most companies do rise in price.  So even if you are not completely savvy in the stock game you can still become a winner if you know a few basics.

So what are the basics for choosing Stocks?

Well first you need to stick with the blue chip stocks.  Those in the Dow are excellent, but anything in the S&P500 is good too.

The reason you want to stick with the bigger companies is that they’ve been around a lot longer and are *usually* more stable.  And they are also the one’s you’ve probably heard about already like Disney or Wal-Mart.

Next you want to make sure that they have a good solid earnings growth.  That means that each quarter their earnings are rising (positive figures).

Warren Buffett recommends looking at stocks that have a Return on Equity of 15% of more.  I happen to agree with him (of course) and so choosing companies with a good ROE is important since those companies are more likely to rise in price rather than fall over the long-term.

And finally choose companies with low debt.  If you avoid companies that have too much debt you can potentially protect yourself against those companies that fail spectacularly like Enron.

That’s really all there is to it.  See I told you learning the stock market doesn’t have to be difficult.

Tracey