There are three main ways to make money on a Stock.  They are; 1) The price of the stock goes up, and we get a Capital Gain on the value of the stock; 2) The stock pays a dividend, monthly, quarterly, or yearly,  so we make income on a regular basis independent of the actual price of the stock; 3) A combination of the two.  The stock can go up in value and also pays a dividend.

Your current Financial situation and level of Financial knowledge, will often determine which of the ways stocks make money, is right for you.  Your Investment strategy is influenced by many things, your age, your “Risk Tolerance”, who your Financial Advisor is, how much time you have to spend on monitoring your Investments, how much money you actually have to invest, to most importantly, your personal interest in your money.

This site is directed at people who take a major interest in their own money, and who don’t have tens of thousands of dollars to invest.  The ACTUAL REAL DOLLARS you have to invest is a very large factor in HOW and WHAT you invest in.  Lets look at an example.  We have two Investors, Matt and Will.  Matt has $100,000.00 available for investing, and Will has $2000.00.

Established wisdom says you should invest in “Blue  Chip” Stocks (use the link for history and definition) which pay a dividend.   An example of a typical Canadian Blue Chip Stock would be TD Bank, and Telus.  TD Bank as (of this writing) is selling at $79.15 a share, and Telus is at $55.99 a share.  Lets look at how this works for a large and small Investor.                                                                LARGE VS SMALL INVESTOR DIVIDEND

Both Matt and Will got the same percentage return on their investment.   But with the Expenses added in, Will LOST MONEY. Investing for a dividend might not produce the same results for a Small Investor, that they do for a Large Investor.  Investing in “Blue Chip” stocks is fairly “SAFE”, but for the Small Investor, “Blue Chip” Stocks often make for very small ACTUAL REAL DOLLAR returns.  When you are a Small Investor the amount of ACTUAL REAL DOLLARS you make, is what really matters.  That is why most Investors talk about “PERCENTAGES” not ACTUAL REAL DOLLARS, it sounds better.

The Small Investor will need to look at a different style of Investing.  The reality of being a Small Investor means you face several situations that a Large Investor doesn’t.  Your trading commissions are often much higher,  you can’t afford to buy large quantities of “SAFE” shares, and you are really trying to increase your ACTUAL REAL DOLLARS as fast as you can.  For the Small Investor who wants to grow their money, you will have to deal in “RISKIER” Stocks.  This means you will have to be SMARTER, SPEND MORE TIME ON YOUR INVESTMENTS, DO MORE RESEARCH, and BE MORE INVOLVED.  Or you can turn your money over to someone else and have them grow it. Remember what happened to Bernie Madoff customers.

As a Small Investor you will live by the “Buy low Sell high” philosophy.  You will be looking for Capital Gains, or in more familiar terms, Increase in the Price of the Stock.  The cost of the trade (Commission) is of very real significance when your a Micro Investor. If your paying $9.00 a trade, and you’re buying 100 Shares, your shares will have to increase $.09 a share just to break even.  Considering you have to pay the same commission when you sell, that means the stock will really have to go up $.18 a share.  That can be a big jump.  The only way to minimize the cost of the trade is to buy more shares.

As you can see the larger the quantity of shares purchased the lower the cost of the trading fee per share.  This also means that if you have $2000 available to invest, and  you need to buy in the 1000 share quantity, you won’t be buying $50.00/share stocks.  You will be in the $2.00 or less range.  OMG!!! “Penny Stocks”

Keep your shirt on.  There are hundreds of stocks listed on all the quality exchanges that are worth less than $2.00 that are not “Penny Stocks”.  Especially today.  There are many companies that were in the $5.00 dollar a share range in 2008 that are now in the $2.00 range.  Surprisingly, many of them have balance sheets that look no worse than in 2008.  And what about companies like the old “Blue Chip” General Motors and Lehman Brothers?  (They have disappeared.)

Trading in quatity under $2.00 Stocks is no RISKIER than trading in “Blue Chip” Stocks, IF YOU DO YOUR HOMEWORK!!!  There is also an advantage.  Most “Blue Chip” stocks don’t go up (or down) 20-40% over a year, much less in several weeks.  What this means to the Small Investor is, Smaller stocks offer a chance to make 20 to 40% returns.  When you have accumulated $10,000.00 you can then go buy a boring “Safe” “Blue Chip” stock.  At the $10,000.00 level the returns are meaningful.  I now have boring stocks in my RRSP.  My TFSA is full of exciting (RISKY) smaller stocks.

Over the next few pages we will be going over some strategies that you will need to use when dealing with Micro Investor Shares.  I monitor between 110 and 120 (Canadian) stocks every week, (usually daily) and less than 20% are over $2.00.  My Actual Dollars made each year over the last 2 years have been 20% of the value of my Investments.

I am no expert, and from the examples I’ll use, you’ll see that I have made bad mistakes.   I have learned to do some things right as well.  Hopefully by seeing MY mistakes, you won’t make them.  Learn from your mistakes, (and those of others) and try not to make the same mistake a second time.  I have found that there is no need to make the same mistake twice, there are so many new mistakes to make, why waste time repeating old ones.