- How To Make Money In The Stock Market!
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The Science Behind Making Money On The Stock Market
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You know you can take that car, and with patience and effort, find a buyer for the car's full value. Maybe the seller didn't want to put in that effort, didn't know what the car was really worth, or for whatever reason, needed the car gone quick. This same thing often happens in the stock market: a stock falls out of favor, whether due to bad news around the company, market volatility, or innumerable other reasons, and its price falls below what the company would be worth to a reasonable purchaser based on its earnings and assets.
Intelligent investors can then purchase shares of the company for less than the company itself is worth, and just like with the car, sell the shares for a tidy profit once the market realizes its mistake. Also like the car, it may take a long time to find a buyer, markets can remain irrational for a long period of time. However, this strategy has been among the most successful in the history of investing. This approach, buying shares of companies for less than the resale value of the company as a whole, is known as value investing, and has been used for decades by famous investors as Warren Buffett and Benjamin Graham to build incredible wealth.
Now, imagine I offered to sell you a grocery store in a small town of people for fair value.
This grocery store is the only one in town, everyone in town shops there for all their food, and it's profitable. You know that in 5 years a new factory will be built in the town bringing new people to the area and the total population up to people. Would you take my offer? Of course you would! You know that in 5 years the grocery store will have 6 times as many customers as it has today.
How to earn money from stock market
With a larger customer base, it should pull in even more money, making the store look extremely undervalued in 5 years! This same phenomenon often occurs in the stock market. Check out the latest earnings call transcript for Amazon. This investing style, buying companies with promise for future growth and holding for the long term to realize benefits from growth, is known as growth investing and has been used by investors like Phillip Fisher and The Motley Fool's Gardner Brothers to great success.
Whether you invest for value or growth -- or you shoot for some of both -- successful investing requires knowledge and patience:. However, if you can master the patience and discipline it takes to stick to these investing approaches, you'll be able to drive life-changing returns for yourself and your family over the long term. Premium Services. Stock Advisor Flagship service. Rule Breakers High-growth stocks. View all Motley Fool Services. Stock Market News.