How often have you heard about the stock market? I myself am extremely well versed in the entity, yet so many others are not. Why is that? Something that is noted upon and spoke about as often as it is should be common knowledge, correct? Unfortunately not, and there are various reasonings as to why that's the case. For instance, people who are blind to the successes of the market by their own failures will often say something along the lines of, “You’re better off putting your money to work in a casino”. Yet, that statement could not be further from the truth. I’m here to change the narrative for my readers, and aid them in a better overall understanding of how the market works.
One of the largest misconceptions of the market is that it’s difficult to make the money you’d like, thus I’m here to disprove that. Most advisors will send their clients money to things such as: Mutual funds or Index funds, while I myself view that as lazy. There are various better ways to make money in the market, while actively managing their fund. Many are not up for the challenge of active management, yet if you are you will most certainly make the most of your money.
Photo: Market Screener
Take, for instance, a SPDR ETF of the S&P 500. $SPY actively trades on the market in correspondence to the index itself. While the returns are not as great as if you were to buy 500 shares of the index, you can greatly reduce the financial burden on yourself, while also picking up more shares than you would the index. Let's put a hypothetical situation out there, shall we? So I speak with a client who has $40,000 they are willing and able to spend in the market. What would be the lazy way of doing this? “Put all that into the S&P index”. You can better maximize your profits this way: Take $30,000 of the 40 and put it into $SPY. It’s currently trading at $369.15 per share, yet it’s not an individual equity in which we need to worry about the sentiment “Buy low sell high”. In January of 1993, $SPY began trading at $44.41, which means within the last 27 years it has posted an all time profit of 731.2%. Let's say we buy at this current level, then wait 5 years and it gains $200 and subsequently goes up to a price point of $569.15. Within 5 years, your $30,000 investment in a non activity managed fund has gained 54%. That would mean we’ve gained a meager $16,200 just off of one of our investments, and we still have $10,000 to play with.
Here comes the thrilling part of investing that some are unable to handle: investing in individual equities. Let’s take a company that has been destroyed by the pandemic: United Airlines, $UAL. United is trading at $44.74 a share, a fraction of what they were worth before getting hit hard by the pandemic. The company’s stock saw its 52 week high at $90.57. If you were to invest at this level, and follow within the rate of return formula, your investment would gain 102% if it were to go back up to its 52 week high.
The biggest things I myself look for when investing in individual equities are the following: P/E ratio, EPS, financials improving YTD, market cap, and dividends.