How to Invest in Stocks: 9 Steps to Make Money and Win

As soon as people find out that I invest in stocks, they start asking me all sorts of questions like “What’s the most money you have made in the stock market?” “How do I start trading stocks?” and “How can I make money fast with stocks?”  I’ve heard these so many times that it makes me laugh.  The reason I laugh is because people are asking the wrong questions.  When you know a little bit about a subject and start hearing the questions people ask, it makes you understand why so many people get taken advantage of in their quests to make money and win.

Invest in Stocks and make $4k in 1 Day

So many people are searching for ways to make money fast.  There are tons of videos on YouTube with titles describing how they made hundreds of dollars in minutes and thousands of dollars in days.  Wow, doesn’t that sound amazing? Can you really make $1,000 in just one day of trading in the stock market?  It is really tempting when you see that someone is having results like this, but then your inner skeptic comes out. You wonder if the person is telling the truth and can it really be done.  Well, I am here to answer that question for you.

If you want to know if people can actually make over $1,000 in a day trading stocks, the answer is “YES”.  In fact,  I have made over $4,000 in just 1 day playing the stock market game.  Right now I am sticking my chest out proudly, thinking that you all must really be impressed.  Just imagine, if you can make that much money in a day, two times per week…that equals over $400k per year.  I should start making my YouTube video now with some awesome clickbait “I make $4k a day in the stock market & you can too”.

But….

I just can’t do it because although it is a true statement, it is not the whole story.  You see it is very easy to tell an audience how much money you made if you do not also have to disclose how much money you lost.  Who wants to say I lost $5k in a day trading stocks, but I won $4k one day and you can too?  And this is why I say people ask the wrong questions when it comes to how to invest and make money.  For every large sum of money I have made quickly in the stock market, I have lost just as much or more.  No one wants to tell you this but it is true when you are trying to make fast money.

Stock Trading or Investing in Stocks?

Stock Trading

The process of trying to make fast money in the stock market is what I refer to as Stock Trading.  This is what I was doing when I made and lost thousands of dollars in a few days.  Stock Trading is exciting because you have the potential to win a lot of money in a short timespan.  I use the word win because it is like gambling for most people who participate. Everyone thinks they have the secret when things are going their way until it isn’t anymore.  Winning is contagious, so once you start trading stocks and you win a few times, it is hard to stop. So when the losing begins, you keep thinking you can turn it around…then you realize that you have lost more than you ever won.

Now, there are several people that claim to be successful traders and day traders and I don’t doubt it.  But it is extremely hard and only getting harder.  Not only are you competing against people with better information and tools than you have, but also against computers.  Yes, I said computers, it’s called high-frequency trading.  This is when computers see a trade and by pure speed make it before you can, so they get it at a lower price and could even sell it by the time you buy it.  This is why some refer to it as the stock market game, you are literally competing against computers and algorithms.

Since I love studying success stories, I have researched the habits of the very small percentage of stock traders that actually win.  It all comes down to discipline and skill.  You have to be smart enough to recognize trends that you can take advantage of, yet disciplined enough to stay focused on your same strategy and cut loses.  It sounds easy but it is not easy to sell for a loss when you think your stock can go back up.  To win at stock trading, you have to be ok with missing out on money you could have made and be ok walking away from the table as they say in Las Vegas.

Investing in Stocks

You should be able to tell by the title that I am partial to investing in stocks versus stock trading.  The reason is because years of trading stocks have taught me a valuable lesson and that is…you cannot predict the stock market.  Stocks go up and stocks go down.  You can do all the studying you want:

  • Balance Sheets
  • Income Statements
  • Charts
  • Trends
  • Valuations
  • Earnings

No matter how things look, you are not guaranteed to be right over a short period of time. But when you invest in stocks, you give yourself time.  Investing in stocks is when you think of your stocks as an asset.  You are picking companies, not just stocks.  When you pick companies, you are looking at how it will perform over the long-term.  So if something bad happens, like the Chipotle (CMG) E. coli scare and the company drops like a rock overnight, you can weigh your options over years to decide if it will recover.  A stock trader cannot do that, they will have to exit and take the loss now.

Dlemmas is a resource to learn from others. I like learning from the best. Take a look at the Forbes Richest People list and see how many  sources of wealth is from stock trading are on the list…not very many, if any.  Now look for sources from investments…the list is long.  Even the people or entrepreneurs who’s companies are listed as their sources of wealth like Bill Gates of Microsoft and Fred Smith of FedEx are really stock investors.  The billions they have made are from the growth their company’s stocks.  So if you want to make real money and win in the stock market, you have to become a smart stock investor.

How to Invest in Stocks

Hopefully, I have convinced you that investing in stocks versus trading them is the smart and safe choice. So many people have heard stories from people who lost money in the stock market crashes of 2001 and 2008.  This has scared many potential investors away and rightfully so. But we can’t let fear control our destiny, we have to find ways give ourselves and advantage.  With any investment, there are always risks rather it is to invest in stocks, real estate, gold, or a business.  They all have ups and downs at different points and this is why people diversify into several types of investments. Soon I’ll write an article regarding my thoughts on diversification and when you should do it, but for now, let’s focus on how to win and make money investing in stocks.

9 Steps to Make Money and Win in the Stock Market

1.  Read the book Rule #1 by Phil Town

invest in stocks

Step 1 in Dlemmas.com Strategy to Invest in Stocks

The first step you need to take if you really want to learn how to invest in stocks is to buy the book Rule #1 by Phil Town.  It is the homework I give to everyone who asks me to teach them the steps to get started.  This is the first step for a few reasons, starting with the fact it shows their level of commitment to actually learning.  Once someone shows me they really want to learn the material and takes steps toward getting a deeper understanding of the principles behind the stock market, I know that an impact can be made.

So why this book versus the hundreds of books on stock investing?  Rule #1 breaks down the starting process with excellent storytelling that engages anyone interested in success stories.  It takes its time getting to the complexities of investing and begins by helping you get to know the author, why he got started, and what made him successful.  Then it gets into how the stock market works, how you have an advantage against the big boys, and what signals you need to pay attention to in order to win.  There is a major focus on buying companies that are “on sale”.

What is Rule #1? Don’t lose Money

What is Rule #2? Don’t forget Rule #1

Do you get the gist? This book focuses on the principles that investors like Warren Buffett follow in regard to keeping your money.  Most smart investors will tell you that you make money when you buy, not when you sell. Phil Town teaches some complex concepts on how to evaluate companies to buy, but he does it in a way that is easy to understand.  After reading this book, you will be in the needed mindset to start successfully investing in stocks.

2.  Open a Brokerage Account


Step 2 is to open a brokerage account with TradeKing.
TradeKing makes it so simple to get started that I simply cannot recommend any other company.  The price is very competitive, but that is not what I would focus on. Once you get started making trades on your stocks, options, or ETFs, you will quickly learn that there is more to it than just the trade price.  It’s like reading a book on how to swim, you don’t really know until you are in the water.  After trying out and researching a number of different companies, I have chosen to stick with TradeKing for my own investing and remain very happy with that decision.

Not only can you invest in stocks with this account, but you can also open up and transfer 401k, Roth IRA, and other accounts under TradeKing.  They make rollovers and regular bank transfers very simple.  Once you are all setup with TradeKing you can start building your stock empire.  So open an account now, but don’t start making stock trades until you understand the principles from Rule #1 and are ready to follow the steps below.

3.  Follow Instructions from the book


The 3rd step is hard. It requires you to stay focused and follow instructions.  Now that you have read the book and played around in your brokerage account, it is easy to think you know what to do.  I’ve seen it time and time again when my friends get overconfident because they see an opportunity that looks exactly like a make money trigger.  The problem is that unless you have been following the market, you won’t truly understand how things change.  As soon as you think you know how a stock will trend, it changes.

Everyone gets inspired by reading the book and looking at all the potential stocks to buy in their TradeKing account.  Then all these ideas start popping in your head about how you can do it better and why you know more about a particular company that everyone else.  Look, confidence is important in life and I talk about how it contributed to Arnold Schwarzenegger’s success in a previous post, but please remember it is earned.  You don’t just start off being confident about untested strategies.  The strategies in the book are tested.  So how about we hold off a bit on reinventing the wheel and just try doing what you learned.  Once you do it for a while, then you can see ways to round the edges but not reinvent it.

4.  Build a Watchlist

invest in stocks watchlist

Dlemmas sample watchlist to invest in stocks

Step 4 makes it easy to get a feel for the stock market.  The book helps you identify the types of stocks to purchase for your investments.  Trust me this list will grow the longer you invest in stocks, so you need a tool to help you keep track of them; a Watchlist.  I like the watchlist on Barchart.com.  I love Barchart for a number of reasons;

  1. They have an awesome app that you can download to your phone that allows you to track several stocks.
  2. You can sort each day’s market activity by Price Advances and Price Declines, so you can find new stocks to watch based on how they are performing.
  3. You can see the chart, options, yield, dividend, p/e, company news, profit margin, income statement, balance sheet, and more all on the app with just a swipe.  It really is awesome!

5.  Focus on  Long-term vs Short-term

In step 5 you have to make a choice. Are you going to invest for the long-term or are you going to focus on the short-term?  I say focus on the long-term because you simply cannot predict the market for an extended period of time.  You make get it right for a while, but if your focus in short-term, you will lose big eventually.  The temptation will come as you learn more about options and other trading strategies.  I am not against them and I even believe there is a place for that in your portfolio.  It is called your high-risk strategy, not the plan to win or easy money investment we like to convince ourselves of.

If you focus on great companies that you study and evaluate with the principles listed in Rule #1,  you can set yourself up for real success and actually make money in the stock market.  You will find your own but here are two of the ones I have not yet purchased but they are on my watchlist as long-term options:

  • PSA -Priced at $205.10 at the time of this writing
  • MCK – Priced at $141.33

6.  Start with ETFs

The sixth step is my recommendation to start by investing in ETFs instead of stocks.  ETF stands for Exchange-trade fund. A security that tracks an index and represents a basket of stocks like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.  The reason I like them so much, especially when you are getting started investing in stocks is that they represent the benchmark professional traders are competing against.  Most mutual funds and money managers compare their performance against how the S&P 500 performed during the same time period.

Why not just buy the S&P 500 exchange the same way you would buy the stock? As an ETF in your TradeKing account under the symbol SPY.  The way it works is like this: The S&P 500 indexed is priced at $2,202.94 today, so that means you can buy the SPY ETF for $220.58.  The SPY price is basically 10% of the index price.  It represents 500 stocks which gives a good representation of what is happening in the stock market.  And the best part is that you don’t have to worry about it going to ZERO.  Any other stock can go to zero if something really bad happens like the market crash of 2008.  It is not likely that the good solid companies you will be choosing will, but they can.  So if you want to invest in stocks, why not start the learning process by investing in this ETF that cannot go to Zero unless every other stock in the  US also goes to Zero. If that happens, we have a lot more to worry about than which stocks we invest in.

7.  Let Winners Run, Cut Losers Fast

Step seven is all about disciple.  Let your winner run and cut your losers fast.  It sounds so easy but it is not.  For some reason, people invest in stocks differently than how they do with other investment vehicles.  When stocks start going up there is an urge to sell it and take your profits as fast as possible.  But if the stock you carefully picked out starts to decline in price, we want to hold on forever and ever hoping it will go back up.  I can’t explain the psychology behind why this happens, but it does and I want to help you avoid this.

After you do you research on how to pick stocks and establish the valuation, after you start tracking them and are ready to invest in stocks, you should choose an exit point ahead of time.  This will tell you exactly what percentage you want to gain from this investment as well as how much you are willing to lose.  If the stock starts to go past that point, no matter what, stick to your rules and sell it.  Yes, you may miss out on some gains, but each transaction still results in a win.  And more than likely you will save yourself tons of money on the losses.

8. Watch the Market Forcast

Make things easy on yourself with step eight, watch the Market Forcast on a regular basis.  This youtube video doesn’t get many views for some reason, but it really should. I love it! David Settles basically breaks down the market for you every day using the S&P 500 and the concepts discussed in Rule #1.  It doesn’t get any better than this.  He does all the work for you on the stock market as a whole (not your individual stock investments).  These videos give you an opportunity to better understand the concepts you have been reading about.  I learn something new almost everytime I watch it.

9. Control Risk

The ninth and final step is to control your risk.  Remember the goal is to make money, not lose it.  We are learning how to invest in stocks, not become a charity.  So don’t put it all on the line.  Baby steps my friends…Crawl, Walk, and then Run. Don’t try to start running too fast.  Investing in the stock market can be a lot of fun, especially if you make money and win.  But success has a funny way of leading to overconfidence.  So if you start getting that itch to try riskier strategies of your own, please please get a mentor first.

Mentors like Timothy Skyes, Superman, and others on Profit.ly are great options if you want to try riskier investment strategies.  You can see how these guys are trading penny stocks, learn the software they use, and discuss when to buy and sell.  They have the system down much better than you will if you do it on your own.  So if you are one of those people that just cannot help yourself and do not want to invest in stocks for the long-term, make sure you control your risk with a mentor who is already successful at the strategy you want to emulate.

Dissolution

So we discussed the best ways to teach yourself, starting with the book Rule #1. Now start the process by opening your TradeKing brokerage account.  Hopefully, you will take your time watching the market, learning your strategies for success, and choosing to not just invest in stocks, but in the companies they represent.  Make sure to use the tools to track your potential investments and watch the market forecast to learn the concepts in depth.

Now it is up to you.  Stay focused on the long-term, start with safer investments like the SPY ETF, and if you must take extra risk, get a mentor.  Good luck and I look forward to hearing about your success stories in the comments.

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Look out for an upcoming article with more detail on SPY and how I compare it to other investment vehicles.

Disclaimer -The content on this website is for informational and educational purposes only and is not and should not be construed as professional financial, investment, tax, or legal advice. Neither Dlemmas.com. nor any of its officers, employees, representatives, agents or independent contractors are, in such capacities, licensed financial advisors, registered investment advisors or registered broker-dealers.  Trading in stocks, options, and futures have large potential rewards but also large potential risk.  Do not trade with money that you cannot afford to lose. The past performance of any trading system, methodology, or particular trader is not indicative of future results.

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