Stocks (MP) There are seven secrets of big-cap investing on Wall Street. The wealthy have used these secrets for nearly a millennium. One of my mentors who hails from an American blue-blooded family shared these secrets with me years ago during a night of drinking in his family’s library. “That night he said to me, “Don. There’s nothing mystical about investing in stock, but there is a secret formula.” He went on to explained the secrets laid out before in this article.
The secret formula (updated) suggests seeking safe and sane strategies for value investing in “Big-Cap” (companies with a market capitalization value greater than $10 billion) growth stocks or anything else. Later, after you’ve grown your portfolio you can diversify by seeking other investment alternatives. At MoneyPacers, this means selecting the correct growth stocks or any stock, paying a reasonable price, and after that holding on to them unless there’s a really sound excuse to sell. Before we get to the secrets the wealthy use to buy stocks, lets look at ways to get your feet wet…
How to Start Investing on Wall Street
Investors most commonly buy and trade stock through brokers. You can set up an account by depositing cash or stocks in a brokerage account. Firms like Charles Schwab and Citigroup’s Smith Barney unit offer brokerage accounts that can be managed online or with a broker in person. If you prefer buying and selling stocks online, you can use sites like Scottrade’s or Ameritrade. Those are just two of the most well-known electronic brokerage houses, but many other large firms are available online. See our “101 Private Wealth Management Firms” for a comprehensive list.
After you’ve opened an account you instruct your broker what types of stocks and how many you’d like to purchase. The broker initiates the trade for you. In turn, he or she earns a commission, normally several cents per share. Online trading sites typically charge lower commission fees, because most of the trading is done electronically.
After selecting the stocks that you want to buy, you either make a “market order” or a “limit order.” A market order is when you ask a stock purchase at the prevailing market price. A limit order is when you ask to buy a stock at a limited price. For example, if you want to buy stock in Apple at $237 a share, and the stock is now trading at $275, then your broker will wait to buy the shares when the price meets $237.
Stock investing research
But first, remember it’s not necessary to diligently pile through a company’s financial reports to get answers to pertinent questions. Just query “growth stocks” on any internet search engine and it should bring up lots of sites that offer useful information. You’re almost assured to find all that is needed at Value Line. This stock-research service provides detailed financial reports on over 2,500 plus companies.
Remember, in “How to Pick Growth Stocks” I revealed you want companies that have projected earnings of 15% or better every year for at least three to five years. Some of my investment peers set the bar even higher. The box in the lower right-hand corner of a Value Line report will offer you a company’s “earnings predictability” This number tells you, on a scale of 1 to 100, how reliable earnings projections have been in the past.
The seven secrets the wealthy use to buy stocks
The “Seven Secrets of Investing on Wall Street” the rich use are getting the right answers before they buy. So, do what they do… Before the rich buy any stock, they must be able to answer “yes” to all the seven following questions:
1. Is the company a part of a growing industry?
2. Does the company have a strong brand position within its industry?
The best-positioned companies have the highest operating profit margins (revenues minus cost of goods sold, divided by revenues) in their industries.
3. Is the company gaining or at least maintaining its market share?
4. Does it deliver new and better products on a timely basis? Like Apple Inc does.
5. Does the company’s strategy seem sensible to you?
6. Is the company focused on a single set of services and products?
7. Does the company have a strong balance sheet and a high and improving return on equity –yearly profits divided by shareholder equity (assets minus liabilities)?
If you can answer yes to all seven questions you have the secret, and can start investing on Wall Street. And you’re most likely do well! An answering “No” to any one of the “Secret Questions” will most likely off-set your target of 6% to 8.5% growth in your portfolio. And you’ll lose money, but keep in mine investing in big-cap companies means staying with stock in both bear and bull markets. Monitoring whether or not they’re consistently losing and asking yourself periodically is it time to get out or stay.