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When I was much younger, I used to hear people say that they liked
to play the stock market as if it were some type of sport. This
started my interest in the stock market. I wanted to find out
exactly what this really meant. It looked pretty simple. When you
purchase shares from a publicly traded company, you are actually
part owner of that company and hope to be able to sell your shares
for a profit. Those are the basics of stock market basics.
This will serve as a "Coles Notes" version covering the basics of
stock market investing.
There are
different types of stock that you can purchase. The
appropriately named common stock is stock that anyone can buy. A
shareholder receives money from their stocks when the business does
well. By purchasing stock in the company, you are an owner of part
of the assets of a company. The more assets a company gets, the more
money is generated, which in turn makes the value of the company go
up. When the value goes up the stock goes up.
Companies make stock available to raise money to either buy more
properties or to expand the original company. Only a certain number
of stocks are put out by the company. When these stocks are sold
they are given a value called a par value.
If you are a shareholder in a company, for every stock you own, you
will receive one vote to decide who should be on the board of
directors. The board of directors of a company have a lot of power
in the business world. They decide how to spend the money that is
generated by the company. They have the final say on whether to
reinvest the money or pay dividends. Not only do they have the say
so on this topic but when it boils down to it, the board of
directors is in charge of hiring and firing top management officials
in the company.
Normally individuals only purchase stock to a company that is
showing that it is doing well. However new businesses are often good
investments. Wouldn't you have like to been in on the Microsoft
stock when they first started out? How about Walmart or Sam's Club?
That would have been one of the best investments you could have
made.
If you are starting to think maybe this isn't as hard to understand
as you first thought and may be considering dabbling, the stock
market isn't all about earning money. If a stock that you purchase
doesn't do well, the value of the stock you own may go down lower
than what you paid for it. Or it could become worthless if the
company doesn't make it and has to declare bankruptcy.
If you are not deterred from the decision to invest in the stock
market, you will have to shop for a broker. This is the person who
handles the buying and selling of the stock you purchase or sell.
They receive a fee for their services. They watch the stock market
constantly for their clients and will advise you on whether you need
to hold onto the stock for a while or sell.
Before you decide to buy stock, take a long look at your finances.
Only spend what you can afford to lose. There is no guarantee that
the company that you decide upon for purchasing stock will do well.
If it does you will be thrilled and promptly decide to buy more
stock.
So there you have it. Learning stock market basics is actually
easier than it originally seems. There are many more types of stock
and all sorts of terms that are easier to understand if explained in
the right manner. However that is for another time. Hopefully a
basic understanding of how to buy a common stock is now much easier
for you to understand.
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