Things to Look for When Buying Stock

It's not that people believe that major companies will fail. But, hearing about stock market crashes, bear markets, and bankrupt companies tends to send a chilling "buyer beware" message for many would be investors. The fear of not knowing how to buy stocks and possibly loosing money are the reasons most people never invest in the stock market.

Here's a little known secret, stock prices rise and fall every minute. If you purchase a stock when the price is high and sell when the price is low, you will loose money. On the other hand, if you purchase stock when the price is low and sell when the price is high, you will make money. Price, timing, dividends, and capital gains are the 4 things to look for when buying stock.

Price

Gather information about the company. Review the historical prices for this stock by using website finance.yahoo.com. Make a list of the company stocks you like and watch them for a while to help you determine a purchase price.

After deciding on a particular stock, watch the Dow Jones Industrial Average (DJIA). Most stock prices go down when the DJIA goes does. Likewise, most stock prices go up when the DJIA goes up. If you buy a stock when the DJIA goes down, you have a better chance of getting the lowest price.

Nothing beats a watch list that gives up to the minute selling prices. Showing the change percentage (plus or minus) will let you know price status. Patiently waiting until your stock falls will also ensure you of getting the lowest price.

Timing

The infamous "bear market" indicates when the stock prices have fallen to their lowest point in years. Take advantage of companies with fallen stock prices. These great bargains will soon disappear. Buy as many shares as you can afford during the "bear market."

Dividends

Not all companies pay a dividend. But those that do will typically pay them quarterly. Some companies even pay dividends monthly. The amounts paid for dividends vary.

Capital Gains

Like dividends, not all mutual funds pay capital gains. The frequency and amounts paid for capital gains also vary between companies.

When it comes to making money in the stock market, it doesn't matter whether you are buying individual company stocks or mutual funds. What does matter is you must buy low and sell high. In other words, make money.

Purchasing stocks that pay dividends or capital gains has three additional advantages. Monies earned from dividends and capital gains can be reinvested into the same stock. You will be accruing additional shares of stock without spending additional money. This process is automatic and you are notified usually by mail that you have additional shares added to your account.

The second advantage is having the dividends and capital gains deposited into your money market account. Placing money in your money market account has three advantages. You don't have to incur commissions to sell stock in order to have money available to buy additional stock. You now have additional dollars available to purchase different stock. You can diversify your portfolio.

Thirdly, you can treat the payments as supplemental income.

Treating the payments as supplemental income means that the money will be sent to you instead of a money market account. You will be earning dividend income and be required to pay taxes, the same as if you were being paid from a job. You can have dividends sent to you every month of the year, if you own more than one dividend paying stock. Multiple dividend paying stocks can be combined and you can create a second income of any size desired.

If you need additional monthly income, choose stocks that have consistently paid dividends. Review the historical records located in website finance.yahoo.com. Verify that dividends have been paid and determine the amounts that have been paid. Determine the quantity of stocks needed to achieve your objective. As the old saying goes "don't put all of your eggs in one basket." Occasionally, companies may not pay dividends especially during the bear market.

Dividend income will provide you with a monthly income and it will keep you from liquidating your portfolio. It's great to have this resource available if you happen to loose your job or retire. You will be dollars ahead when you use price, timing, dividends and capital gains to help you choose a stock to purchase.