I recently made a solid 13% return on a small, rather short term investment in Dreamworks Animation. I'd like to tell you why, I bought it, and how I insured (though there is never any real insurance on common shares, but that being kept in mind, I will continue) a profit that would satisfy me, without risking over-holding, or in short being "too greedy".
The first step of making wise investments, as is often the case with anything wise, is reading. Reading, reading, reading. What should you read? The Wall St Journal, BBC World Online, Yahoo Finance, and the Nasdaq homepage. Look for movers and shakers if you are looking for a short term (high risk) move, or steady uptrending stocks. This is how I found Dreamworks (DWA).
I saw that DWA was trading at $16.4, very close to its 52 week low (a standard bit of information given in a stock quote) of $16.3. So, why would I buy then? How could I tell it wasnt just tanking? Well, with Puss in Boots coming out of the blocks at a rip-roaring base, earning revenue of $33 million, I felt that if the studio (that is responsible for such block-busters as the Shrek series and Kung-Fu Panda) can gain that kind of money off a spin-off picture, than it isn't in any real trouble of going under. Also, when I looked at the 52 week high of $31.6, I saw the oppurtunity to get in low, and hold on until the stock moved back up to a more realistic "worth". I personally like to average the two 52 week marks (31.6+16.3= 47.9/2= ~24 a share) to see what a stock of a seemingly stable company is actually "worth". Taking that average, and comparing it to the "Ask" (the going market price per share) of $16.4, I arrived at the opinion that the stock was "undervalued" to what the company is really worth.
So I bought in, small, low risk, 15 shares for $254 after a $8 trade fee. I set a "Good 'til Filled" limit sell order, which means the stock is for sale at a price you set (the limit) until it is all sold. I set my sell at $18.5 , just over $2 a share (or 13%) in possible profit, $30+ on the lot. The stock hit the mark and sold. After the trade fees of $16, I came out $14 richer. Now, to most of you $14 isn't worth doing all the math. But lets think about it. If your money is in the bank, its collecting under 1% return annually, and a lot of dust. This trade made 13% in just over a week. Had I had more money in, and bought, say 150 shares, I would of made $300. But for now, the goal for me, and other young people with low amounts of capital in the market (that's you), is to simply make that 10-15% gain, and learn from every trade. If I can continually make 13% on my trades, I'll have the capital to buy 150 shares in the future, follow?
Wednesday, November 30, 2011
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