Investing For Beginners: Stock Market Basics

by Joseph · 23 comments

in Investing for Beginners

This is the first of a multi-part series entitled Investing for Beginners.  Over the next several parts of this series I’ll be covering basic skills needed for investing such as Accounting, Economics and Stock Market Basics.  Today I’ll begin with Stock Market Basics.

An accounting professor of mine once told me that if anyone wants to be successful with investing they can be.  Stock Market Basics truly are not a difficult thing to learn.  At its core the Stock Market is essentially a free market system, meaning that it’s based on forces pulling against each other; these forces are supply and demand.  As a beginning investor it’s important to remember that these pulling forces are based on several things, such as a companies fundamentals (revenue, profit, assets, liabilities), technical evaluation and even “acts of god.”  To be able to interpret these market forces and company profiles requires some knowledge in accounting and economics and also a desire to keep up on stock market and company news.  Thus Stock Market Basics can be learned by education, which is the foundation for success as an investor.

Investing for Beginners: What Is The Stock Market?

I’ll liken the stock market to an auction.  If an auctioneer has 50 widgets for sale he or she is likely to start the bidding out at a price that’s much lower than if he or she had only 1 widget to sell.  The more the auctioneer has to sell (supply) the less they are probably going to sell for because buyers (or demand in this case) are limited (based on price, supply, etc).  The stock market is similar to this.  However instead of buying a product or service the buyer actually buys ownership in a company.

The way that the market works is actually strikingly similar to an auction.  Brokerage companies (companies through which you can purchase stock of other firms) often have representatives on the floor of all the major stock exchanges, such as the New York Stock Exchange (NYSE).  These representatives could be thought of as auctioneers.  They take orders from those who want to buy stock and they take orders from stockholders who want to sell their stock.  They then match up orders and, voila!  A stock trade has taken place.

So What Do I Do First?

In order to start trading stocks you’ll need to open an account with a brokerage firm such as Scottrade, Charles Schwab, Sharebuilder or Zecco.  I personally recommend Zecco as they offer 10 free trades a month with a balance of $2,500 or more in your brokerage account.  If you want to open an account at either Scottrade or Sharebuilder shoot me an e-mail.  I think they offer incentives for referring friends – both to the referrer and the refereed. If you’re interested in Zecco (my personal recommendation) then you can follow the affiliate link below to sign up.

 

Next you’ll want to think of a company that you want to invest in.  Ideally it should be something that you know a little bit about, or support as a company.  Then you would do some research on them.  For example (and we’ll use AAPL because it’s a favorite of mine) if I wanted to buy shares in Apple I would first do some research on the company to discover for myself if I think they will continue to be profitable in the future.  A good (but very general) rule of thumb is that as long as a company continues to increase their earnings they will continue to grow and so will the value of their stock.

Prices Fluctuate, So Don’t Panic!

It’s important to remember that even though over the long-run (we’re talking years, not months) the value of a stock is based almost entirely on fundamentals, the share price of a stock is still subject to irrationality and bubbles.  In other words if I were to buy 100 shares in AAPL today, expecting to hold it for 5 years before I sell it, I can expect that the share price will, over the days and the months, have its ups and its downs.  I should be confident, however, that my decision to purchase an ownership (through 100 shares of stock) in Apple will pay off in the long-run.

Investing is not something that should be taken lightly.  If a friend of yours gives you a tip that they think a certain stock is going to go way up, you probably shouldn’t listen to them.  For example, I had a friend who recommended I pick up some SIRI (Sirius Satellite Radio) years ago when they first signed on Howard Stern.  Back then the stock price was somewhere in the teens… today it’s a penny stock.  His “hunch” wasn’t right, and your friends’ hunches probably won’t be right either.  Don’t trust anyone except yourself, your gut and your wallet when it comes to investing.  This way if you make a stupid investment (and we all do at some point) you’ll have no one to blame but yourself AND you’ll be able to learn from your mistake.

This concludes part 1 of the Investing for Beginners series, Stock Market Basics. Check out the next post in the series on Investing for Beginners.

{ 22 comments… read them below or add one }

daria369 September 30, 2008 at 8:40 am

This is a great time for financial services/investing lessons become more and more people will become aware of their importance. Keep it going! :)

Reply

JohnD October 1, 2008 at 7:42 am

Hello, this is a nice topic, I think I saw something simillar on http://www.doitinvest.com but yours is more basic…

Reply

Blanche Fulford November 17, 2009 at 4:13 pm

I had a website on this subject, but I had so many spam comments I had to shut it. You appear to be doing a better job keeping out the spammers! Congratulations!

Reply

Karine Flor December 9, 2009 at 2:39 pm

Helpful info here and if you discover yourself a similar position there are several strategies you can make use of to manage your credit card accounts effectively. If you are going to open up a single credit card bank account, you will potential want to build certain that you have a Visa or a MasterCard. These cards are agreed by most retailers, whereas other cards like American Express or Find may not be.

Reply

Andres December 20, 2009 at 1:03 am

I very happy reading your article. Thank you so much for share good information.

Reply

CD Rates December 20, 2009 at 6:56 pm

Nice post, quick question are you using wordpress for your blog? I like the look and feel of your site.

Reply

Todd Billet January 7, 2010 at 5:27 pm

Write this up into an ebook or something… this stuff is Gold!

Reply

masihmark January 25, 2010 at 6:55 am

Hi

Nice topic you provide here. I just found your blog and happy to read this entry. Good info.
Can I copy to my blog?

Thanks
.-= masihmark´s last blog ..What is secured personal loan. =-.

Reply

Alysa Clendenen February 19, 2010 at 4:34 pm

That is a very marvellous blog. But one question remains How do you deal with the raising amount of Spam in blog comments? I really hate it, It wastes my time and I hate messing around with it every single day.

Reply

henry@penny stock March 20, 2010 at 5:44 am

For ordinary people it would probably be surprise that economists dont know what really is money. These “what M-aggregates should be part of money supply” debates dont contribute much to a economic theory.

Reply

Gabriella Schech March 31, 2010 at 12:57 am

interesting take on the subject, count me as a new subscriber!

Reply

Joean Shares April 19, 2010 at 12:43 pm

Thanks for sharing, I just wanted to let you know that your blog doesnt show up perfectly on the blackberry browser but I am probably still in a minority of users.

Reply

Jenny Share April 19, 2010 at 4:03 pm

The market definitly looks to be coming back but what happened came at a good time for me, I have only been involved in this for about 10 years and I had never experianced a slum, I was starting to feel invicible. No one is!

Reply

Joselyn Riddleberger May 3, 2010 at 8:22 pm

I have been looking at at Apple and Goldman Sachs principally. The last Goldman drop helped me make a lot money with my puts but I kept Apple for the longer term, I think it has longer term potential. Many thanks for your informative posts and please wirte more.

Reply

Matthew May 12, 2010 at 1:16 pm

This is not the best time to get into the market unless you are going for long terms investment options. Stay conservative until the market becomes more stable.

Reply

Alton Delmote July 28, 2010 at 2:59 am

That’s really awesome.. I hope I can see more of this.. I am looking forward for your next post..

Reply

Hertha Schamel August 6, 2010 at 8:11 am

I found this is an informative and interesting post so i think so it is very useful and knowledgeable. I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well

Reply

AltonDelmote September 5, 2010 at 9:58 pm

Thank you for such an interesting post!

Reply

Hugh Kleftogiannis September 29, 2010 at 4:47 pm

Well written article! I really enjoy reading your blog because of you often give us great articles. Awesome Job once again. I will adding to favorites this website. I think I shall subscribe to this feed also. Thanks! ……..

Reply

AltonDelmote December 8, 2010 at 2:53 am

What a helpful post really will be coming back to this time and time again. Thanks

Reply

Carmina Zwick December 19, 2010 at 2:51 am

Hello, normally I rarely post comments on WordPress blogs but now I’m afraid I absolutely have to do it. The other day I wanted to install the latest version of the Google Chrome web browser and your blog doesn’t display properly anymore. Your header overlaps part of the text and I can’t read it. I used to have the exact same issue with my herbal incense reviews blog and I was able to resolve it by editing the CSS code. Can you please fix it? Thanks in advance! Please excuse my English, it’s not my mother language. I am from Norway :)

Reply

David Hector the Investor May 20, 2012 at 1:27 am

Great site, easy to understand explanations on investing. look forward to reading more through this site

Reply

Cancel reply

Leave a Comment

{ 1 trackback }

Previous post:

Next post: