Is 3M a buy?
Minnesota Mining and Manufacturing Company, better known as 3M, is one of the most diversified companies in terms of products. To the point that, according to their own website, they have more than 100,000 product patents that they can provide to customers.
It was founded in Minnesota in 1902 as a small mining company, as can be inferred from its name. However, since the company did not achieve the expected success, they decided to move from mining to producing the abrasives that the industry needed.
And from then on, the company followed a path in which, as they define it, they never stopped inventing products and innovating. So, following this path, they went from inventing the first tough sandpaper in 1920 to iconic products such as the Scotch-Brite sponge.
Their product portfolio is truly immense and they are all dedicated to niche markets, devising a solution for every problem. However, these can be categorized into abrasives, adhesive tapes, safety equipment, household products, window films and oddly enough, healthcare equipment.
3M as an investment
About this company we can find information on the official website registered since 1920, which tells us that this company has a long history on the New York Stock Exchange. Which in turn reflects the growth and expansion of 3M as a company.
As it grew from a small company in a small town in Minnesota to a presence in 100 countries and more than 88,000 employees worldwide, its stock market share went from a rock bottom price to the value it is at today.
3M's historical performance is something that any company would like to have and, of course, any investor would like to achieve. The best part is that 3M stock not only has a great performance year after year, but it also pays dividends quarterly to its investors.
Dividends are the portion of a company's earnings that are distributed to shareholders, so a company that pays dividends is a company that generates profits. And 3M's dividends are particularly high, even more so when you consider its share price.
For the past several years, 3M has been paying annual dividends to its shareholders in the range of $5 to $6 per share. This makes it one of investors' favorite dividend stocks.
What instruments can you trade?
Have you heard about Exchange-traded funds? They are passively managed funds, known for combining the benefits of stocks and mutual funds: they can be exchanged regularly at market price, but include a much wider diversity of assets and the rates are significantly lower.
About Index Funds
If a long-term investment sounds good to you, and you won't need to withdraw your money in five or ten years, index funds can be the best choice. This type of investment is also great for beginners since the risks are lower. Besides, the variety is wider.
You may think differently, but beating the benchmark is far from being a piece of cake and very few fund managers have done it, apart from some famous cases, like Warren Buffett's.
In practice, if a fund manager achieves to beat the benchmark, it is only for a short time or on a specific occasion. Or perhaps they would charge very high rates and indexing would be a better decision anyway.
Index funds offer solutions to both concerns: their fees are minor and they regularly beat active managers, but in the long term.
Forex or currency trading is the exchange between a pair of currencies in order to obtain a profit through the operation.
For instance, if you decide to trade euros and dollars, you speculate how many dollars it will take to buy a euro, with the expectation that the first currency (the euro) will raise its price compared to the second (the dollar), to make a profit by selling it. Let's say you entered when a euro is worth 1.10 USD and you exit when it is worth 1.15: thus, that margin will be yours once you sell back.
You may be thinking by now that this form of trading requires investing considerable amounts, and that is correct, since variations are usually minimal, and often you will need to use high leverage (which sometimes can be too much of a risk). If you are new to the world of trading, we don't recommend beginning with Forex, because it is very risky and complex.
The most known currency pairs are available on this broker. However, take into consideration that this market functions through contract for differences, therefore you will not be the owner of the real asset.
What are CFDs?
It is possible that you have found the term CFD more than once if you already accessed this broker. We will explain its meaning now, but you should know first that cryptocurrency operations on this broker are only CFDs when you are short-selling.
For your information, and if you want to try at some point day trading cryptocurrency and other more advanced operations, we will also refer to terms such as short-selling and leverage.
The good thing about this broker is that it allows you to bet both “in the black” and “in negative”. In a hypothetical case: you have the conviction that the 3M will fall, so probably you think that the best thing to do is wait until it does and then go in. However, if it actually goes down, you can earn some money out of that.
You can do that by “going short”. Basically, this is how it works:
- You ask someone to lend you, for instance, 100 units of 3M, which total value at that moment is $ 5,000 (these numbers aren't real)
- You sell them at their price on the market, $ 5,000
- The 3M devaluates from $ 50 to $ 30
- You obtain the 100 units again, but at $ 3,000
- Now you give back the 100 units
- The difference is yours, so, you will have earned $ 2000
Take into account that it is much easier than it sounds: we can summarize this whole operation by saying that by trading in 3M you can also make money if you anticipate the downs.
How does leverage work
If you still don't know what “leverage” is, we'll put it short. When trading, it's the capacity of increasing your investment without putting extra money. For example, you can enter with $ 100, but if you leverage x2, your initial investment will be $ 200.
About leverage, Take Profit and Stop Loss
Assuming that, for instance, you are certain that 3M price is going up, and that you have $ 1,000 for “going long”, you should know that you have the option of investing more and making more money.
There's the possibility of requesting a credit, but it is a process that takes time, and when you receive the money, 3M might be already so expensive (if your guess was right) that trading wouldn't be convenient anymore.
Leverage is exactly like a credit, but it is only a few clicks away! You will be able to operate with much more money than what you have on the platform. As in the image below, you will see the different options you have:
Trading with other assets allows you to use more leverage. The reason: leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. Let's talk a bit more about how leverage works:
- If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 ($ 1,000 are a “loan” from the broker).
- A few days later, 3M price does rises, as you assumed, and now the cost of your investment is $ 2,400 (20% higher), so you decide to sell back.
- The $ 1k of leverage will be deducted, and you will have $ 1,400 left; which means you've earned $ 400, since the other $1,000 was yours from the beginning.
In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is quite good.
The thing is, it can also play against you. If everything goes according to plan and the price goes up, you will earn more money in less time; but if the value of the asset decreases, you will also lose more in less time.
Supposing that the asset didn't increase by 20%, but it went down also by 20%, you won't lose $ 20 but $ 40, because of the leverage. Therefore, when using leverage it is essential to take into account Take Profit and Stop Loss.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you purchased 3M shares at $ 100, you request the broker to close once it reaches $ 120. That way, you make sure you won't change your mind and decide to keep waiting in case it keeps rising, which could make you lose it all.
Stop Loss is even more necessary, particularly if you use leverage, because a small loss with leverage can be fatal for your wallet. Always remember to set a Stop Loss more tight than that suggested by the broker.