How to make money in the stock market

Investors buy stock for one simple reason: to make money. The surest way to earn money from investing is to create as di­verse a portfolio as possible and hang on to it for a long time. To succeed at making money investors need good sources of infor­mation.

Much information is supplied by stockbrokers. They study market reports and get information on the forecasted financial performance of companies. Brokers usually recommend oppor­tunities or provide special services such as newsletters. For this brokers charge additional fees.

Sometimes investors prefer to avoid high brokerage fees. They implement their own investment strategy. Serious investors sub­scribe to investment newsletters and carefully study the stock market. Best investors become an expert in a particular industry.

A simpler investment strategy is to choose some reliable blue chip stocks and stick to them. This strategy is safe and can earn money over the long run. Investors should avoid making com­mon mistakes which are: 1) failure to diversify, 2) paying too much for a stock which would not go up, 3) not knowing when to sell a stock going down, 4) paying too much attention to ru­mors and tips.

There are also several techniques of predicting the stock prices. Most investors begin with fundamental analysis, which is the process of comparing a company's current financial position and future prospects with those of other firms in the same or different industries. Some investors usually called "chartists" try to identify a specific stock's behavior charting it over time and then predicting its future price movement. Other investors be­lieve that prices are random. The random walk theory is based on the assumption that future stock prices are independent of past stock prices. They choose stocks at random. A group of investors has adopted an unusual approach, contrarianism, which holds that the market will move in the direction opposite to that predicted by the general public. In other words, these investors do the opposite of what the general public does.

V. Milovidov «English for Financial

Management Experts»

Words and expressions

to hang on to something)	держаться (за что-либо)
to succeed	иметь успех
opportunity	шанс, возможность
to implement	приводить в исполнение
to subscribe to	подписываться на...
to stick to something	придерживаться чего-либо
over the long run	здесь: на протяжении долгого времени
rumor	слух, сплетня
tip	совет
to predict	предсказывать
to chart	изображать в виде графика
behavior	поведение
random	случайный, беспорядочный
at random	наугад
contrarianism	от contrary - противоположный

Exercise 18. Answer the following questions

1. What reason do investors buy stock for?

2. What is the surest way to make money in the stock market?

3. What do investors need in order to succeed at making money?

4. Who supplies information about the market?

5. Where do the stockbrokers obtain information from?

6. What do stockbrokers charge for information?

7. What do investors do if they want to avoid brokerage fees?

8. What is the serious investors' approach to studying the market?

9. What is the simplest investment strategy?

10. What are common mistakes usually made by investors?

11. What is the fundamental market analysis?

12. How do the "chartists" predict stock's behavior?

13. What is a "random walk theory"?

14. What is contrarianism based upon theoretically?

Exercise 19. Read the dialogue

Lorna McCourt, a stockbroker, is consulting with Brian Lowman, an investor in IBM

B: Suppose, the stocks go down by 5 points. How much will I lose?

L: As far as I know, you have about $75,000 invested in IBM and that would be about a $20,000 loss. But that won't happen over the long run, I hope. IBM is going up steadily.

B: But anyway, what would you recommend to make a safer portfolio?

L: Diversify and study the market. Here I have some of the latest reports. You take them and study most thoroughly. You will easily see the direction most companies head to if you do it rather regularly.

B: And could you possibly do it for me?

L: I am a so called discount broker, you know, and I do not usually do that kind of a job. But if...

B: Well, I see, that means some additional payment?

L: Right. Brokers usually get an additional 20 percent for information about the market.

B: That'll suit me. That'll help me to avoid mistakes.

L: That'll be of some help, sure. But you've got to be aware that even the best brokers sometimes perform below average and do not pick a winner every time.

B: You have to run risks if you want to stay in the business, haven't you?

Exercise 20. Make up dialogues of your own

You consult a broker about possible mistakes in the investment policy in order to avoid them. Choose between major techniques of predicting stock market activity

Exercise 21. Translate into English

1. Наиболее надежный способ зарабатывать деньги на фондовом рынке - создать диверсификационный портфель акций. 2. Чтобы преуспеть в бизнесе, инвесторы должны иметь хорошие источники информации. 3. Биржевые брокеры изучают биржевые отчеты и предоставляют инвесторам бюллетени о состоянии капиталов компаний. 4. Брокеры устанавливают дополнительный гонорар за информационное обслуживание. 5. Если инвесторы хотят избежать уплаты высоких брокерских гонораров, они полагаются на собственную финансовую политику. 6. Многие инвесторы становятся экспертами в конкретных отраслях. 7. Простейшая инвестиционная стратегия состоит в выборе надежных "голубых фишек". 8. Главные ошибки инвесторов состоят в неспособности к диверсификации, придании слишком большого значения советам и слухам, в незнании, когда следует продать акции, теряющие в цене. 9. Серьезные инвесторы полагаются на фундаментальный анализ рынка. 10. Они сравнивают текущее финансовое состояние разных компаний в разных отраслях промышленности. 11. "Чартисты" пытаются установить поведение акций. 12. Другие инвесторы выбирают акции наугад.