How to Under Stand the Stock Market
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- Category: Stock Market
If you don't understand them, stock quotes are remarkably disorienting, full of mysterious numbers, symbols and acronyms. The truth is, you don't have to be financial genius to make sense of them, or any kind of genius at all. All that is required is a commitment to learning the basics and practicing for a period of time prior to investing with real cash. The "stock market" is just that- a huge "market" where stocks are traded by many different vendors. Similar to the way other things are traded- like fish or vegetables at the old-world market, or cows at the cattle auctions- stocks are traded "at auction". Prices are determined by supply and demand- by sellers and buyers willingness to buy or sell at a certain price. As demand goes up, the price goes up, and so on.
Understand 'equity securities.' As an equity investor, when you buy stock you take an ownership stake in a company and assume a corresponding degree of risk. Learn the language of the market, familiarizing you with such financial terms as 'price-earnings (PE) ratio,' 'margin,' 'option,' 'earnings per share' and 'leverage.' Analyze the holdings of several successful mutual-fund companies, noting which stocks they have held - and dumped - over the past three or four years. Read the quarterly and annual reports that several large corporations have filed with the Securities and Exchange Commission (SEC). Research companies that you have personal knowledge of and a high degree of confidence in. Evaluate their SEC filings, looking for trends that indicate growth and continuing profitability.
Get online. Dozens of companies offer financial news, advice and analysis online to Research Stocks to Buy').Take advantage of all the information your brokerage has to offer regarding individual stocks. Know what you are buying - and why - before you invest. Invest on paper for a few weeks and carefully monitor the performance of your would-be portfolio before you actually start plunking down your money. What makes the price of a stock change? Companies are expected to earn profit. If profits increase, the stock price will likely increase. Even if investors think the earnings will increase, the stock price may go up. If good news comes out on a company, the price, and demand for the stock may go up. With bad news, the price and demand may go down. The price of a stock is even more dramatically affected when supply is very high or very low.
