Trading shares on the stock market has historically created vast fortunes, and even in this tumultuous economy, it remains a preferred method of accumulating wealth. Fortunately, there is help learning how to invest in the stock market for ‘dummies’ who would prefer to spend as little of their time watching the financial news as possible.
Stocks 101
When a company takes their business to the public in an offering called an ‘IPO,’ they are seeking large sums of capital to continue growing. They get this capital by selling pieces of paper called common or preferred stock, on a stock exchange to investors at large. In return, investors hope the company, and by association, their shares, will grow in value and make them a profit.
The major exchanges where these shares are traded are the NYSE, which is the major exchange of New York, the ‘NASDAQ,’which trades all shares electronically, and the ‘AMEX,’ another North American organization popular for many smaller corporations,because of less stringent entry requirements than the NYSE. While they are called ‘stock markets,’ all securities are traded, including bonds.
To the extent that the issuing corporation needs the public’s capital to increase future earnings, and will act in their interest, each share represents a small unit of ownership in the company. By purchasing these units of ‘ownership’ a shareholder can participate in voting on corporate board members, and may receive dividends if the company decides to issue them. While the general public can claim a stake in XYZ company by purchasing their stock, they have little say in the executive decision-making process; by contrast, they have no liability if those executives make a series of poor business decisions, either.
Shares are sold as ‘common’ or ‘preferred,’ and the majority of individual investors hold the common variety. The key difference with preferred shares are the dividend distributions. These shares get first rights to dividends and can be a good source of passive income with a profitable company. They are not as liquid as common stock, though, and the holders of these shares have no voting rights.
Trades and Education
Research is essential to choosing stock purchases wisely, but for beginners, finding a smart broker can save a lot of time and hassle. Regardless of whether the individual plans on making trades through an online brokerage account or an individual broker, they should still have an idea of what they want and where they want to put their money. This starts with the language of the market.
Two commonly used general terms are ‘bull’ and ‘bear’ markets. Simply put, when stocks are heading up, it is called a ‘bull market;’ when they are sluggish or declining, it is known as a ‘bear market.’ Learning to distinguish between these two can help identify sectors that are lagging or set to take off, giving the investor information they can act on.
Beginning investors may wish to explore several areas of industry, concentrate on a personal area of expertise, or choose other instruments, such as bonds to invest in. Within each area, knowledge and consistency are essential to success; stay alert and good investing.
Looking for Something? Search here:
(examples: auto, banking, college, credit cards, debt, frugality, insurance, investing, loans etc.)
