Your Questions About Money Making Stocks To Buy

Linda asks…

How does the stock market work?

I know it is very complicated but please try to make it as simple as possible. I know or think I know for every stock bought there must be a stock sold. For example if there was a stock and nobody bought or sold it , the volume was flat 0, would this stock still go down when the dow or rest of the market went down or would it stay the same? And if it was to go down, where did the money go? For example again, GM stock is 6 bucks, say there are a million shares, who has this 6 million dollars? GM? Can they use it to build cars?

John answers:

Stocks are issued by companies when they go public. The shares are made available vis traders. People buy the shares in the hope that the price rises and that the company pays a dividend on the stock share (a dividend is a share of company profits paid out to share holders.

As stock will only rise or fall as it’s bought or sold. The value of any given stock is what someone is willing to pay for it at any given time. Prices will fluctuate because a stock is either in demand or not, and that effects what the seller is willing to take for it and what the buyer is willing to spend.

Using your scenario: no one has the six millions. That value is determined by the current posted price of the stock (that’s determined by the trading in it, as I described above). At the end of the day, you can calculate that total value by the number of shares available times the stock price.

But the “money” isn’t really anywhere. One has to sell the stock to get the monetary value of it. On its face, a stock is just a sheet of paper.

The company can buy back it’s stock whenever it likes, and can sell that stock on the open market and use the cash to build cars. Most large companies borrow and repay money based on their capitalization, which includes the amount of their outstanding stock.

Again, it’s only worth what the market is willing to pay.

Hope this was clear! 😉

Laura asks…

Is 400 dollars worth investing into stock market?

Im 14 and saving up money, i need about 5,000ish and i have 400. I kinda know about stocks ( buy low,sell high) but im not a geniuos with it. Im wanting 5k when im 18. Would it even be worth trying to increase it with what i have now? And if so, how much more would i most likely make?

John answers:

Sure y not

Maria asks…

What are good stocks to buy that will be worth alot 5-8 years from now?

What are good stocks to buy that will be worth alot 5-8 years from now?

John answers:

I can only tell you where I’m putting my own money.

Right now, I am very, very, very bullish on the Preferred Stock of troubled financial companies – especially investment banks! Now, if you are going to consider preferred stock, make sure that you only buy CUMULATIVE preferred (where if the company ever skips the dividend, they still owe it to you). I will not even bother looking at the dividend yield on a preferred stock that is not cumulative, because the company has a much smaller incentive to actually pay you what they owe you.

Personally, I have gotten into Lehman Brothers preferred stocks – especially the L and K series, which both pay a $1.59+ dividend, and can be called for $25. I actually bought some more of the L series today at market open for less than $11.50/share.

I’ve made a lot of money by buying the preferred stock of troubled financial companies so far this year. The big payoff here is that if the company gets bought out, then the company that buys them has to honor your shares. So after Countrywide went bust, the value of the preferred that I owned skyrocketed because they were considered the same as Bank of America preferred stock. Here, I more than doubled my money in just a few months. The same thing happened when JP Morgan took over Bear Sterns.

Of course, there is some downside risk – for example, if the company just fails, and is not taken over, then you could lose a lot of money on a strategy like this. But the yields are so attractive, that I think it’s worth it.

For example, if we consider that I bout LEH-PL @ ~$11.50, and we know that if the financial sector was reasonably healthy, the shares should be trading for ~$25, and we factor in the dividend that I get while I hold it, we can project an average annual rate of return of ~40% if it takes 3 years for the sector to recover on its own. But, if Lehman gets taken over by Goldman Sachs or someone, then we could easily see how the investment could double almost overnight.

Bottom line: I think cumulative, non-variable Preferred Stocks of Investment Banks are extraordinarily undervalued at this time, and that such investment opportunities certainly warrant further research on the part of the investor.

Thomas asks…

How do you make money from stocks?

Okay, let’s say I bought an apple stock for $636.34. Then, few days, the stock rises to $11.77 ($648.11). Now, how how much money will I make from that? I don,t get how you buy stocks for over $100, but, you are expected to earn 5 dollars per share annually. isn’t that a rip off?

John answers:

First, it’s not $5 annually, but 5%. And it’s an average of ALL stocks over a l-o-n-g time period. If you buy 100 shares on one stock and it goes down, you lose value (not actual cash until you sell). The stock market has NO GUARANTEES of making money.

But there are other ways of making (and losing money). Short selling is where you sell stock you don’t own, yet, let’s say for $100. You pocket the $100. In a short sell, you are borrowing shares of stock to sell and you are betting that the price goes DOWN before you have to buy it back. Let’s say the sock went down to $80. When (and if) it does, you buy the stock for $80. You’ve just earned $20 (the difference between what you sold if for vs what you paid for it). But if the stock goes UP, you’ll lose money in that you’ll be paying more for the stock than what you sold it for.

Joseph asks…

How much money can i make if i invest in a company?

I just want to make money off of this, i want to buy some stock from Facebook. How much do you think i’ll make? I’m planning on investing 500,000 to 900,000 dollars. Facebook is pretty popular.

John answers:

I don’t think you should invest that much money in Facebook. You should be thinking about 100,000 – 350,000 in my opinion.

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