Question by James Weston: trading stocks question ?
I am completely new to all of this have done some reading and Im really considering opening an IRA scottrade account for long term investing and short term trading. I guess my question is say I were to buy 250 shares of a stock at 40 dollars per stock which comes out to $ 10,000. Now lets say a couple months later the stocks are at 47 dollars a share and I sell all 250 at 45 a share which would be a total of $ 11,250 , then take out $ 7 for the trade purchase , take out $ 7 for the selling and so then would that mean I just made $ 1,236 in profit to reinvest? If that is true and I do this only when I know I am going to be making a profit and not panicking when stocks get low and selling, but instead waiting to sell them only when there is profit even if it takes a long time for them to give profit. Im not talking about stocks that would go so low that there would not be some point in time where they wouldnt go back up to at least what I had purchased them for. I am talking about good solid stocks that are always going to be around, high cap stocks i think they are called. If it really could work like this I feel like its to good to be true, because in time if you keep reinvesting and putting money you would be doubling , then tripling your original amount and so on.
Right I would be only doing the buying and selling with money I could afford to lose if it ever came to that. The other bit I would be leaving in and adding to, to accumulate over time. I just looked at stocks like microsoft over a 3 month and 5/10 year period and what the graph is showing is at some point their stocks will dip to a low but then it always goes back up and it repeats this trend. So with my play money I buy when its low and when it gets high at some point again sell. I know I wont be scared into selling something like this if it where to go super low because at some point it goes back up according to its graph and trend. There for at some time whether its weeks, months , or years there will always be a chance for profit, unless microsoft somehow was to go under which you would think would be unlikely to happen anytime in the soon if ever.
Answer by Donut Tim
You’ve got the right idea.
The hard part is “I do this only when I know I am going to be making a profit”
If you buy stock hoping that you can sell it for a quick profit because of the daily (or monthly) swings in price, then you are not investing. That is gambling and on a large scale. You are hoping that for some unknown reason, the trading price will go up instead of down, and that you can outguess the public (including experienced professionals) and sell at the best price.
If instead, you buy and hold stock in quality companies that are earning money, you are not gambling. The prices of these stocks go up for a real reason; the companies are earning money every year and becoming more valuable.
If you save a portion of your income each payday and invest in sturdy stocks, over the course of several years you can grow very wealthy indeed. It is like hiring someone to get a job and earn money for you, and then using that money to hire more workers. Your money grows geometrically.
What do you think? Answer below!