Investing in Stocks for Passive Income: A Beginners Guide

The overarching thought process surrounding investing is that it is complex. We’re afraid to lose, we’re afraid because we dont know what we’re getting ourselves into. Albeit, through all the noise on social media there is still a way for beginners to start investing without the help of a newsletter or a financial advisor.

First off, get the idea of day trading out of your mind it’s not possible anymore and if anyone tells you it is, they’re either a fool or work at an institutional firm. In our day of age we have algorithmic trading and due to this, price inefficiencies or what traders like to call arbitrage is not that easily available in the market anymore. Intraday trading lost its appatite in the late 2000’s as the intraday trading volume shifted towards the Foreign Exchange market. Within the foreign exchange market, bid-ask spreads were tight, hence it became attractive to traders. Not to forget the ability to leverage your currency pair positions.

So let’s figure out a constructive route for y’all to get in the game of equity investing. Look around you. Look at the products around you that provide high utility delta for you. Start from there and look for companies that provide a product that makes daily life easier. You dont need to be a quantitative analyst to properly allocate your financial capital to equities with attractive growth perspectives.

So before wrapping up let me give yall some of the metrics or trends I use for investing in the stock market.

1. The P/E ratio, price to earnings of the company should be below the industry average. Remember if you’re buying a high P/E company, that insuantes expensive price and should wait for the ratio to become lower. A company with a price to earnings ratio of 10 means that, this idiosyncratic equity is trading at 10 times what it is earning its shareholders.
2. Look for companies that have been buying back their own equity. Equity buybacks are great, look for shares being repurchased. If the company has been gradually buying back shares in the recent two fiscal quarters, that investment could be worth while.
3. Look for dividend yield, this is basically the money the company will give you for taking the risk to own the shares. A dividend yield of 3% means that the company pays out 3% of your aggregate position in the stock on either quarterly or a fiscal basis. Dividend yield averages are higher in emerging markets than the U.S or Europe.

Hope this was useful for beginners in the space, let me know what you think and if I should have mentioned other components of equity investing.