Lots of reader wants to know whether what the best way to invest in stock is. This is a very tricky question and the answer is dependent on time. It keeps on varying. However I have tried to cover all the aspects related to stock in this article.

The four major ways to invest:

1. Through 401k plan. Or if you work for a non profit, 403k plan.
2. Through a Roth IRA, traditional IRA and SEP IRA account
3. Through a brokerage account
4. Through a direct stock purchase plan or dividend reinvestment plan (DRIP).

The five type of assets you might own:

1. Common stock.
2. Preferred stock.
3. Bonds: corporate bonds, municipal bonds, saving bonds, US government treasury etc.
4. Money markets: those liquid funds that are meant to protect your purchase power. They are cash equivalent.
5. Real estate investment trust (REIT).
6. You can also add mutual fund to it.

The three financial statements:

1. The income statement.
2. The balance sheet.
3. The cash flow statement.

These all are necessity of stock investment. You must know them.

Money making in bad companies:
This is a risky job and only professionals are supposed to do it. Let’s suppose that you have completed your port folio. You must know that sometimes we can make money by investing in what are supposed to be bad companies. A little bit of mathematics will let you know how it is possible.

Let us take an example of two oil industries. Let us suppose that in 1996 the price of oil per barrel was $10. You make assumptions that the price will go up to $30 in coming years. Suppose there are to companies, company A and company B.

Let us suppose that,
Company A:Company A is doing a great business. The crude oil rate is $10 and the expenses are $ 6 per barrel. Thus the company makes $24 profit per barrel.

Company B:Company B is doing terrible business. The rate of crude oil is $10 per barrel and the expenses are $9 per barrel. Thus the company makes profit of $21 dollars per barrel.

Now suppose the price rises to $30 per barrel. Thus the company A makes 600% profit (i.e. $ 24 per barrel). However the company B makes $21 per barrel (i.e. 2100 %). Hence we see that for company B which was doing terrible business the profit percent is high and that for company A which was doing good business id low i.e. 600%. This rate will influence the stock. Hence we see that we are able to earn more money from the company which was doing bad business. This is what stock investing means.