Stock Market Basics > stock market basics

Stock Market Basics

I have always heard the words ‘dabbling in the stock market.’ I never did dabble, but I did decide to find out exactly what that entails. If all goes well when you buy stocks from a certain company, you are actually part owner of that company and will receive money from your stocks.

The appropriately named common stock is stock that anyone can purchase. 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.

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.