Stock Investing For Dummies E-Book

Paul Mladjenovic

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 649

Veröffentlichungsjahr: 2024

Beschreibung

Get started with stock investing and achieve your personal finance goals

The bestselling Stock Investing For Dummies is full of practical and realistic stock market guidance. Today's market is full of surprises, and this book will help you understand all aspects of the investing process, so you can thrive as an investor, come what may. With straightforward direction from a renowned best-selling author and national financial authority , this book discusses the many different ways you can invest in stocks, so you can create a portfolio that works for you. You'll also find updates on the latest trends and growth opportunities, plus insights into what it means to invest wisely in the current financial environment. Be confident in your investment decisions, thanks to this sound Dummies advice.

• Build a strategic stock portfolio that meets your needs
• Discover the basics of investing, including how to invest in difficult markets
• Learn how to invest in AI and how to make the most of AI investing tools
• Explore ETFs, preferred stocks, options, factor investing, stock warrants , and beyond

This is a great Dummies guide for new investors looking for a comprehensive guide on the current stock market, as well as those looking to brush up their stock investing skills.

Leseprobe

Stock Investing For Dummies®

To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Stock Investing For Dummies Cheat Sheet” in the Search box.

Table of Contents

Cover

Title Page

Copyright

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part 1: The Essentials of Stock Investing

Chapter 1: Surveying the World of Stock Investing

Understanding Investment Basics

Preparing to Buy Stocks

Knowing How to Pick Winners

Chapter 2: Taking Stock of Your Current Financial Situation and Goals

Establishing a Starting Point by Preparing a Balance Sheet

Funding Your Stock Program

Setting Your Sights on Your Financial Goals

Chapter 3: Defining Common Approaches to Stock Investing

Matching Stocks and Strategies with Your Goals

Investing for the Future

Investing for a Purpose

Investing for Your Personal Style

Chapter 4: Recognizing Risk and Volatility

Exploring Different Kinds of Risk

Getting the Scoop on Volatility

Minimizing Your Risk

Weighing Risk against Return

Chapter 5: Stock Investing through Exchange-Traded Funds

Comparing Exchange-Traded Funds and Mutual Funds

Choosing an Exchange-Traded Fund

Taking Note of Indexes

Part 2: Before You Start Buying

Chapter 6: Gathering Information

Looking to Stock Exchanges for Answers

Grasping the Basics of Accounting and Economics

Staying on Top of Financial News

Reading (And Understanding) Stock Tables

Using News about Dividends

Evaluating Investment Tips

Chapter 7: Going for Brokers

Defining the Broker’s Role

Distinguishing between Full-Service and Discount Brokers

Choosing a Broker

Discovering Various Types of Brokerage Accounts

Judging Brokers’ Recommendations

Calling on Robo-Advisors

Chapter 8: Investing for Long-Term Growth

Becoming a Value-Oriented Growth Investor

Using a Few Handy Tips to Choose Growth Stocks

Chapter 9: Investing for Income and Cash Flow

Understanding the Basics of Income Stocks

Analyzing Income Stocks

Exploring Some Typical Income Stocks

Covered Call Writing for Income

Writing Puts for Income

Chapter 10: Understanding Technical Analysis for Stock Investors

Comparing Technical Analysis and Fundamental Analysis

Staying on Top of Trends

Getting the Scoop on Technical Charts

Strength Index

Part 3: Picking Winners

Chapter 11: Using Basic Accounting to Choose Winning Stocks

Recognizing Value When You See It

Accounting for Value

Chapter 12: Decoding Company Documents

A Message from the Bigwigs: Reading the Annual Report

Dig Deeper: Getting a Second Opinion

Do It Yourself: Compiling Your Own Research Department

Chapter 13: Emerging Sector and Industry Opportunities

Telling the Difference between a Sector and an Industry

Interrogating the Sectors and Industries

Outlining Key Sectors and Industries

Chapter 14: Small Cap Stocks, IPOs, and Stock Warrants

Exploring Small Caps

Investigating IPOs

Cashing In on Stock Warrants

Chapter 15: Factor Investing

Surveying the Pros and Cons of Factor Investing

Breaking Down the Factor Categories

Getting into Factor-Based ETFs

Checking Out a Few Factor Investing Examples

Part 4: Investment Strategies and Tactics

Chapter 16: Discovering Screening Tools

Understanding the Basics of Screening Tools

Touring a Stock Screening Tool

Checking Out an ETF Screening Tool

A Few Final Points to Keep in Mind for Successful Stock Searches

Chapter 17: Understanding Brokerage Orders and Trading Techniques

Checking Out Brokerage Orders

Buying on Margin

Going Short and Coming Out Ahead

Chapter 18: Investing During a Crisis

Understanding What Happens Before a Crisis

Taking Action as an Investor When a Crisis Looms

Chapter 19: AI Investing

Beginning with AI Basics

Investing in AI Stocks

Investing in AI-Related ETFs

Investing in AI Indirectly

Chapter 20: Keeping More of Your Money from the Taxman

Paying through the Nose: The Tax Treatment of Different Investments

Sharing Your Gains with the IRS

Discovering the Softer Side of the IRS: Tax Deductions for Investors

Taking Advantage of Tax-Advantaged Retirement Investing

Part 5: The Part of Tens

Chapter 21: Ten Indicators of a Great Stock

The Company Has Rising Profits

The Company Has Rising Sales

The Company Has Low Liabilities

The Stock Is at a Bargain Price

Dividends Are Growing

The Market Is Growing

The Company Is in a Field That Has a High Barrier to Entry

The Company Has a Low Political Profile

The Stock Is Optionable

The Stock Is Benefiting from Favorable Megatrends

Chapter 22: Ten Ways AI Can Boost Your Investing Strategies

Providing Basic Investment Education

Offering a Second Opinion

Summarizing Complex Documents

Optimizing Your Portfolio

Helping with Real Estate Investing

Deciphering Your 401(k)

Conducting Fundamental Analysis

Analyzing Market and Economic Sentiment

Assisting with Financial Planning

Creating Useful Calculations

Chapter 23: Ten Investments and Strategies That Go Great with Stocks

Covered Call Options

Put Options

Cash

EE Savings Bonds

I Bonds

Sector Mutual Funds

Bearish Exchange-Traded Funds

Dividend Yield Exchange-Traded Funds

Consumer Staples Exchange-Traded Funds

Reinvestment

Chapter 24: Ten Investing Pitfalls and Challenges for 2024–2034

Trillion-Dollar Pension Shortfalls

Taiwan

The Bond and Debt Bubble

AI Opportunities and Problems

Federal Deficits and Debt

A Social Security and Medicare Reckoning

Conflict and Terrorism

A Potential Currency Crisis

A Derivatives Time Bomb

The Effects of Government Actions

Part 6: Appendixes

Appendix A: Resources for Stock Investors

Financial Planning Sources

The Language of Investing

Textual Investment Resources

Investing Websites

Investor Associations and Organizations

Stock Exchanges

Finding Brokers

Fee-Based Investment Sources

Exchange-Traded Funds

Sources for Analysis

Tax Benefits and Obligations

Fraud

Appendix B: Financial Ratios

Liquidity Ratios

Operating Ratios

Solvency Ratios

Common Size Ratios

Valuation Ratios

Appendix C: AI Resources and Tools for Stock Investing

Beginners’ Tutorials and Courses on AI

AI YouTube Channels

Books about AI

AI News and Views

User Groups on AI and ChatGPT

AI Resource Compilations

Investing AI Tools

Personal Finance AI Tools

Tax and Budgeting AI Tools

Robo-Advisors

ChatGPT Alternatives

Directories of AI Tools

Other Finance-Specific Tools That Use Generative AI

Index

About the Author

Connect with Dummies

End User License Agreement

List of Tables

Chapter 2

TABLE 2-1 Listing Personal Assets in Descending Order of Liquidity

TABLE 2-2 Listing Personal Liabilities

TABLE 2-3 Figuring Your Personal Net Worth

TABLE 2-4 Listing Your Income

TABLE 2-5 Listing Your Expenses (Outgo)

TABLE 2-6 Looking at Your Cash Flow

Chapter 3

TABLE 3-1 Investor Types, Financial Goals, and Stock Types

TABLE 3-2 Comparing the Yields of Various Investments

Chapter 6

TABLE 6-1 A Sample Stock Table

TABLE 6-2 The Life of the Quarterly Dividend

Chapter 8

TABLE 8-1 Income Statement for Grobaby, Inc.

TABLE 8-2 Balance Sheet for Grobaby, Inc.

Chapter 9

TABLE 9-1 Comparing Yields

Chapter 11

TABLE 11-1 XYZ Balance Sheet — December 31, 2023

TABLE 11-2 XYZ Income Statement — December 31, 2023

List of Illustrations

Chapter 10

FIGURE 10-1: Generic chart sloping in a definite downward direction.

FIGURE 10-2: Generic chart showing a sideways pattern.

FIGURE 10-3: Chart that simultaneously shows an up, down, and sideways trend.

FIGURE 10-4: Chart that shows the jagged edge going upward along with the trend...

FIGURE 10-5: Chart showing a channel.

Chapter 15

FIGURE 15-1: U.S. gross domestic product (GDP) from 2015 to 2023.

Chapter 16

FIGURE 16-1: A typical stock screening tool.

Chapter 19

FIGURE 19-1: The advantages of AI for investors.

FIGURE 19-2: The disadvantages of AI.

FIGURE 19-3: Sample investment prompts from ChatGPT.

FIGURE 19-4: Asking ChatGPT about companies in the AI field.

FIGURE 19-5: Asking Copilot about AI ETFs.

Guide

Cover

Table of Contents

Title Page

Copyright

Begin Reading

Index

About the Author

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Stock Investing For Dummies®, 7th Edition

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright © 2024 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2024934842

ISBN 978-1-394-25456-9 (pbk); ISBN 978-1-394-25458-3 (ebk); ISBN 978-1-394-25459-0 (ebk)

Introduction

I am thrilled that you have the 7th edition of Stock Investing For Dummies, and it’s a privilege once again to be the author. I recall finishing the 1st edition literally the night before my son Adam was born in March 2002, and this seventh edition comes in 2024, during a pinnacle presidential election year and concerns hitting all of the alert buttons, ranging from all-time highs of debt (government, corporate, and personal), to geopolitical tensions (the Middle East, Ukraine, Taiwan, and other hot spots), to political and social controversies brewing at home. Choosing stocks wisely has never been more important than now!

The stock market ended 2023 as another banner year for the Dow Jones Industrial Average, S&P 500, and Nasdaq. As always, no one can tell for sure if 2024–2025 will see new record highs or if a market crash or bear market is near (I have my suspicions), but if you choose your stocks wisely, you should be able to forge ahead with more gains. I think that “choosing wisely” says it all — and it’s something that this edition strives for. Yes, I do expect bumps and bruises along the way — market pullbacks, crashes, corrections, fabulous up days, and scary down days — but if you focus on the stocks of quality companies and exchange-traded funds (ETFs), you can outperform the market and do very well in the long term.

Remember that if you bought quality stocks right before the scary stock market pandemic dip of 2020, when it plunged over 30 percent during a two-month span, you’d have still come out ahead when the market regrouped and zigzagged its way to record highs during 2023. Today, you’d be sitting on fantastic total returns (capital gains and dividends, too) in spite of what the world (and the markets) have seen and experienced. So be of good cheer — prudent, long-term investing (versus trading, speculating, or guessing) will have you coming out ahead and beating those investors who didn’t read this book!

Successful stock investing takes diligent work and acquired knowledge, like any other meaningful pursuit. This book can definitely help you avoid the mistakes others have made and can point you in the right direction. It gives you a heads-up about trends and conditions that are found in few other stock investing guides. Explore the pages of this book and find the topics that most interest you within the world of stock investing. Let me assure you that I’ve squeezed decades of experience, education, and expertise between these covers. My track record is as good as (or better than) the track records of many experts who trumpet their successes. More important, I share information that can help you avoid common mistakes (some of which I made myself!). Understanding what not to do can be just as important as figuring out what to do.

In all the years that I’ve counseled and educated investors, the single difference between success and failure, between gain and loss, has boiled down to two words: applied knowledge. Take this book as your first step in a lifelong learning adventure.

About This Book

The stock market has been a cornerstone of the investor’s passive wealth-building program for over a century and continues in this role. The 2020s so far have been one huge roller-coaster ride for stock investors. Fortunes have been made and lost. With just a little more knowledge and a few wealth-preserving techniques, more investors could have held onto their hard-earned stock market fortunes. Cheer up, though: This book gives you an early warning on those megatrends and events that can affect your stock portfolio. Although other books may tell you about stocks, this book tells you about companies’ performance and financial condition, and how those factors affect their stock prices.

This book is designed to give you a realistic approach to making money in stocks. It provides the essence of sound, practical stock investing strategies and insights that have been market-tested and proven from more than 100 years of stock market history. I don’t expect you to read it cover to cover, although I’d be delighted if you read every word! Instead, this book is designed as a reference tool. Feel free to read the chapters in whatever order you choose. You can flip to the sections and chapters that interest you or those that include topics that you need to know more about.

Sidebars (boxes of text) in this book give you a more in-depth look at a certain topic. Although they further illuminate a particular point, these sidebars aren’t crucial to your understanding of the rest of the book. Feel free to read them or skip them. Of course, I’d love for you to read them all, but my feelings won’t be hurt if you decide to skip over them.

The text that accompanies the Technical Stuff icon can be passed over as well. The text associated with this icon gives some technical details about stock investing that are certainly interesting and informative, but you can still come away with the information you need without reading this text.

Stock Investing For Dummies, 7th Edition, is also quite different from the “get rich with stocks” titles that cram the bookshelves. It doesn’t take a standard approach to the topic; it doesn’t assume that stocks are a sure thing and the be-all, end-all of wealth-building. In fact, at times in this book, I tell you not to invest in stocks (or even to bet against them!).

This book can help you succeed not only in up markets, but also in down markets. Bull markets and bear markets come and go, but the informed investor can keep making money regardless. To give you an extra edge, I’ve tried to include information about the investing environment for stocks. Whether it’s politics or hurricanes (or both), you need to know how the big picture affects your stock investment decisions.

One last note: Within this book, some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

I figure you’ve picked up this book for one or more of the following reasons:

You’re a beginner and want a crash course on stock investing that’s an easy read.

You’re already a stock investor, and you need a book that allows you to read only those chapters that cover specific stock investing topics of interest to you.

You need to review your own situation with the information in this book to see whether you missed anything when you invested in that hot stock that your brother-in-law recommended.

You need a great gift! When Uncle Mo is upset over his poor stock picks, you can give him this book so that he can get back on his financial feet. Be sure to get a copy for his broker, too. (Odds are that the broker was the one who made those picks to begin with.)

Icons Used in This Book

Useful icons appear in the margins of this book; here’s what they mean.

When you see this icon, I’m reminding you about some information that you should always keep stashed in your memory, whether you’re new to investing or an old pro.

The text attached to this icon may not be crucial to your success as an investor, but it may enable you to talk shop with investing gurus and better understand the financial pages of your favorite business publication or website.

This icon flags a particular bit of advice that just may give you an edge over other investors.

Pay special attention to this icon because the advice can prevent headaches, heartaches, and financial aches.

Beyond the Book

In addition to the material in the print or digital book you’re reading right now, Stock Investing For Dummies, 7th Edition, comes with other great content available online. To get the Cheat Sheet, simply go to www.dummies.com and enter “Stock Investing For Dummies Cheat Sheet” in the Search box.

Where to Go from Here

You may not need to read every chapter to grow more confident as a stock investor, so feel free to jump around to suit your personal needs. Because every chapter is designed to be as self-contained as possible, it won’t do you any harm to cherry-pick what you really want to read. But if you’re like me, you may still want to check out every chapter — because you never know when you may come across a new tip or resource that will make a profitable difference in your stock portfolio. I want you to be successful so that I can brag about you in the next edition!

Part 1

The Essentials of Stock Investing

IN THIS PART …

Find out what to do before you invest your first dollar in stocks. Evaluate your current financial goals and situation.

Know the different approaches to stock investing and which may be right for you.

Figure out the risks of stock investing and discover the best ways around them. Understand the concept of volatility.

Invest in the best stocks with a single exchange-traded fund (ETF) purchase.

Chapter 1

Surveying the World of Stock Investing

IN THIS CHAPTER

Knowing the essentials of stock investing

Getting ready to purchase stocks

Using what you know to pick successful stocks

While I work on this new edition of Stock Investing For Dummies, the stock market is near an all-time high (circa 38,000 for the Dow Jones Industrial Average and 5,000 for the S&P 500 in early 2024), which bodes well for stock investing. I think that you can find great stock investment opportunities in virtually any time period — even for newbies. Great stocks can help you build your wealth (through appreciation or providing income from stock dividends) in both up and down markets. In fact, a bear (or down) market can be a great time to buy stocks because they’re cheaper (think “sale!”). The key is knowing what to do (and even why) — but this book can help you with that.

Today’s stock market is a little puzzling, but it can still be rewarding. I can only promise you that if you read this book seriously, you’ll do much better than the average investor. The purpose of this book is not only to tell you about the basics of stock investing, but also to let you in on solid strategies that can help you profit from the stock market. Before you invest, you need to understand the fundamentals of stock investing, which I introduce in this chapter. Then, I give you an overview of how to put your money where it will count the most.

Understanding Investment Basics

The basics of stock investing are so elementary that few people recognize them. When you lose track of the basics, you lose track of why you invested to begin with. The following chapters in Part 1 can help you grasp these basics:

Knowing the risk and volatility involved in stock investing:

Perhaps the most fundamental (and therefore most important) concept to grasp is the risk (of losing money) that you face whenever you put your hard-earned money in an investment such as a stock. Related to risk is the concept of volatility.

Volatility

refers to a condition in which there is rapid movement in the price of a particular stock (or other security); investors use this term especially when a stock sees a sudden drop in price in a relatively short period of time. Find out more about risk and volatility in

Chapter 4

.

Assessing your financial situation:

You need a firm awareness of your financial starting point and where you want to go.

Chapter 2

helps you take stock of your current financial status and your goals.

Understanding approaches to investing:

You want to approach investing in a way that works best for you.

Chapter 3

shows you the most common approaches to investing.

Seeing what exchange-traded funds have to offer:

Exchange-traded funds (ETFs) are like mutual funds in that they have diversified portfolios, but you can trade them like stocks. I think that every stock investor should consider ETFs as a positive addition to their portfolio strategies since they offer benefits such as diversification and convenience. See

Chapter 5

for the lowdown on ETFs.

Here’s the bottom line in stock investing: Don’t immediately send your money to a brokerage account or go to a website and click Buy Stock. First, find out as much as you can about what stocks are and how to use them so that you can achieve your wealth-building goals.

Before you continue, I want to clarify exactly what a stock is. A stock is a type of security that indicates ownership in a corporation and represents a defined portion (measured in shares) of that corporation’s future success. The two primary types of stocks are common and preferred:

Common stock:

This type of stock, which I cover throughout this book, entitles the owner to vote at shareholders’ meetings and receive any dividends that the company issues.

Preferred stock:

This type of stock doesn’t usually confer voting rights, but it does include some rights that exceed those of common stock. Preferred stockholders, for example, have preferential treatment in certain conditions, such as receiving dividends before common stockholders in the event of a corporate liquidation or bankruptcy. Additionally, preferred stock seeks to operate similarly to a bond for investors seeking stable income. (In this book, I mostly cover common stock, but I do talk about preferred stock in

Chapter 9

.)

In addition to stocks, I also cover exchange-traded funds (ETFs) in Chapters 5 and 13 because they can provide diversification (or instant exposure to an entire industry or sector with a single security) to a stock investor’s portfolio.

Preparing to Buy Stocks

Gathering information is critical in your stock-investing pursuits. Get the scoop on your stock picks at two different times: before you invest and after. Obviously, become informed before you invest your first dollar, but also stay informed about what’s happening to the company whose stock you buy, as well as about the industry and the general economy. To find the best financial information sources, check out Chapter 6.

When you’re ready to invest, you need to open a stock brokerage account. How do you know which broker to use? Chapter 7 provides some answers and resources to help you choose a broker (and that includes robo-advisors). After you open a brokerage account, it pays to get familiar with the types of orders that you can implement inside that account; find out more about placing orders in Chapter 17.

Knowing How to Pick Winners

When you get past the basics (see the preceding section), you can get to the meat of stock-picking. Successful stock-picking isn’t mysterious, but it does take some time, effort, and analysis. And the effort is worthwhile because stocks are a convenient and important part of most investors’ portfolios. Read the following sections and be sure to leapfrog to the relevant chapters to get the inside scoop on hot stocks.

Recognizing stock value

Consider stock purchasing like buying eggs at the grocery store. In this analogy, the grocery store is the stock market, the eggs are companies, and the prices for those eggs are the prices that you’d pay for the companies’ stock.

What if two brands of eggs are similar, but one costs $2.99 a carton and the other costs $3.99? Which would you choose? You’d probably look at both brands and judge their quality — and if they’re indeed similar, you take the cheaper eggs. The eggs at $3.99 are overpriced. You use the same thought process when buying stocks. What if you compare two companies that are similar in every other respect but have different share prices? All things being equal, the cheaper price represents a better buy for the investor.

But the egg example has another side. What if the quality of the two brands of eggs is significantly different, but their prices are the same? If one brand of eggs is stale, of poor quality, and priced at $2.99, and the other brand is fresh, of superior quality, and also priced at $2.99, which would you get? I’d take the good brand because they’re better eggs. Perhaps you’d consider the lesser eggs an acceptable purchase at $1.99, but they’re overpriced at $2.99. The same example works with stocks. Don’t buy stocks from a poorly run company if you can buy stocks from a better company in the marketplace at the same — or a better — price.

Comparing stock purchasing to buying eggs may seem overly simplistic, but doing so does cut to the heart of stock investing. Eggs and egg prices can be as varied as companies and stock prices. As an investor, make it your job to find the best value for your investment dollars. (Otherwise, you get egg on your face. You saw that one coming, right?)

Understanding how market capitalization affects stock value

You can determine a company’s value (and thus the value of its stock) in many ways. For the most basic way, just look at the company’s market value, also known as market capitalization (or market cap). Market capitalization is simply the value you get when you multiply all the outstanding shares of a stock (or total stock shares issued and available for investing) by the price of a single share. You can calculate the market cap easily; for example, if a company has 1 million shares outstanding and its share price is $10, the market cap is $10 million.

The terms small cap, mid cap, and large cap don’t reference headgear; they reference how large a company is, as measured by its market value. Here are the five basic stock categories of market capitalization:

Micro cap (less than $300 million):

These stocks are the smallest, and hence the riskiest, stocks available. (There’s even a subsection of micro cap called

nano cap,

which refers to stocks under $50 million. But I don’t talk about nano cap in this book because they are too small, too speculative, and not usually appropriate for beginning investors.)

Small cap ($300 million to $2 billion):

These stocks fare better than the micro caps when it comes to survivability and still have plenty of growth potential. The key word here is “potential” because these companies need to grow to prove themselves.

Chapter 14

covers small caps and micro caps.

Mid cap ($2 billion to $10 billion):

For many investors, this category offers a good compromise between small caps and large caps. These stocks have some of the safety of large caps because of their size and proven performance while retaining some of the growth potential of small caps.

Large cap ($10 billion to $200 billion):

This category is usually best reserved for conservative stock investors who want steady appreciation with greater safety. The media frequently refer to large cap stocks as

blue chips.

Ultra cap or mega cap (more than $200 billion):

These stocks obviously refer to companies that are the biggest of the big; for example, Google and Apple stocks are ultra cap stocks.

From a safety point of view (meaning minimizing or avoiding losses), a company’s size and market value do matter. All things being equal, you should consider large cap stocks, which are generally considered to be safer than small cap stocks. However, small cap stocks have greater potential for growth. Compare these stocks to trees: Which tree is sturdier, a giant California redwood or a small oak tree that’s just a year old? In a huge storm, the redwood holds up well, whereas the smaller tree has a rough time. But you also have to ask yourself which tree has more opportunity for growth. The redwood may not have much growth left, but the small oak tree has plenty of growth to look forward to (as long as it can weather any storms that come along).

For beginning investors, comparing market cap to trees isn’t so far-fetched. You want your money to branch out without you becoming a sap.

Although you need to consider market capitalization when making investment decisions, don’t invest (or not invest) based solely on market cap. It provides just one measure of value. Look at numerous factors (such as the company’s profitability, growth, and so on) that can help you determine whether any given stock is a good investment.

Sharpening your investment skills

Investors who analyze a company can better judge the value of its stock and therefore profit from buying and selling it. Your greatest asset in stock investing is knowledge (and a little common sense). To succeed in the world of stock investing, keep in mind these key factors for success:

Understand why you want to invest in stocks.

Are you seeking capital gains (which you can get through appreciating, or growing, stocks) or income (through dividends)? Look at

Chapters 8

and

9

for information on these topics.

Timing your buys and sells does matter.

Terms such as

overbought

and

oversold

can give you an edge when you’re deciding whether to purchase or sell a stock.

Technical analysis

is a way to analyze securities through their

market activity

(past prices and volume) to find patterns that suggest where those investments may be headed in the short term. For more information on technical analysis, see

Chapter 10

.

Do some research.

Look at the company whose stock you’re considering to see whether it’s a profitable business worthy of your investment dollars.

Chapters 11

and

12

help you scrutinize companies. If you’re considering small cap stocks, then be sure to read

Chapter 14

.

Understand and identify what’s up with the Big Picture.

It’s a small world after all, and you should understand how the world can affect your stock portfolio. Everyone from the bureaucrats in Europe to the politicians in the U.S. Capitol can affect a stock or industry like a match in a dry haystack.

Chapters 13

,

18

, and

24

give you a lot of guidance on sector opportunities, megatrends, and yes, the Big Picture (both economic and political).

Consider small cap opportunities.

Looking for big bucks by investing in small cap stocks? Find out how to evaluate small cap stocks and IPOs (initial public offerings). Another way to speculate in stocks is through

stock warrants

(speculative securities that give you the right to buy stocks and offer good profit opportunities).

Chapter 14

covers all of these topics.

Get a handle on factor investing.

One thing that professional money managers have used for their portfolios has been

factor investing,

which may be a new term for beginning and intermediate investors. A

factor

is a characteristic that these money managers utilize to make prudent stock investment choices. These characteristics act like “guardrails” so that a manager can avoid or minimize mistakes that could result in losses. Discover more about factor investing in

Chapter 15

.

Use investing strategies like the pros do.

Chapter 16

gives you the lowdown on stock-screening tools that many pros use, which can help you find great stocks very quickly. I’m very big on strategies such as trailing stops and limit orders, and fortunately, today’s technology gives you even more tools to help you grow or protect your money. So head on over to

Chapter 17

for insights on ways to transact stock.

Prepare yourself for crises.

Will bad times unfold for the U.S. economy and financial markets while you read this book? That’s a possibility. At the time I’m writing this, the United States has crossed the Rubicon with a $34 trillion dollar debt and geopolitical crises (including in the Ukraine, the Middle East, and elsewhere), with more economic dangers lurking. How do investors protect themselves? No worries; I’ve got you covered in

Chapter 18

.

Put the power of AI to use.

Artificial intelligence (AI) is a game-changer for investors and financial advisors. Used correctly, it can help you become a better and more proficient investor, as well as making you better informed than you otherwise would be. Find out more about using AI for stock investing in

Chapter 19

.

Keep more of the money you earn.

After all your great work in getting the right stocks and making the big bucks, you probably want to keep the fruits of your investing. I cover tax ideas and resources to minimize what taxes you owe in

Chapter 20

.

Every chapter in this book offers you valuable guidance on some essential aspect of the fantastic world of stocks. I’ve compiled the knowledge that you can pick up and apply from these pages from decades of personal experience and research that span over nearly a century of stock-picking. The investment experience of the past — the good, the bad, and some of the ugly — is right here for your benefit. Use the information in this book to make a lot of money (and make me proud!). And don’t forget to check out the appendixes, where I provide a wide variety of investing resources, AI tools, and financial ratios.