Neil Hoechlin - Investing In Stock Market For Beginners: Understanding the basics of how to make money with stocks

Investing In Stock Market For Beginners

Understanding the basics of how to make money with stocks

Neil Hoechlin

http://bit.ly/neilhoechlin

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Every form of trading most always follows a similar pattern. A trader buys low, sells high, keeps the profit, keeps customers satisfied, and keeps a record. Trading in stocks is also a just the run of the mill form of trading in this regard. The only difference is that you dont have to do the trading yourself. Sometimes, people do it for you with your money but you must always have knowledge of what to buy and sell, and at what price you want to sell them.

Usually when you trade in goods, you go through a process of acquisition. This includes the logistics of transporting your goods to where you want them, storing them, and sometimes, transporting them to your buyers; all of which you have to be involved in. Trading in stocks does away with all these operational details as stocks are not tangible objects. You simply acquire your stocks, and you have a figure with your name beside it as evidence that you own them. You dont need to transport them and you dont need to store them in the warehouse. These days, you dont even need to leave your house or contact the buyer before you sell. You simply look at the value of stocks you want to sell and sell them with the click of a mouse.

Stocks, also known as company shares, are one of the most popular kinds of investments. They are higher in risks than other forms of investment like bonds but are also usually higher in returns. Therefore, it is advisable to have a considerable part of your investment in stocks. If a company is doing well, you want to take part in their success. Stock prices tend to fluctuate based on supply and demand. You can make money by an increase in a stock's share price or if a company pays a dividend.

This eBook shows you the fundamentals of investing and trading in stocks. Whether you are trying to increase and accumulate your money for future use, or you are looking at making some money in the short term, this eBook will be of help. It has been written in a very simple way to describe what the stock market is all about, what to know before you invest, and how to invest.

What are Stocks?

A stock is a partial ownership investment. Also called shares, stocks are the parts in which the ownership of a business entity has been broken down into. These parts are then sold to people who can buy them and therefore, become stakeholders to the business entity. They contribute in a limited way to decision making based on the size of their shares and also share in the profits of the company in form of dividends.

Think about a business entity as a cake sliced up into numerous pieces and each piece sold to individuals. Each piece is a part of the main cake and also a cake on its own. Each piece of cake is a share in this regard. Investment in stocks is called an equity investment.

Before we go into details about stocks and the stock market, we need to get familiar with some commonly used words in investment.

Asset

An asset is an item in which the investor puts his money to enjoy the benefits of said resource. Typically the investor hopes that its value will appreciate and it will bring returns directly or indirectly. Assets can be tangible or intangible. Stocks are intangible assets.

Investment Portfolio

This is the total sum of all your investments, both in nature and in value. Investors can diversify their portfolio by investing in a variety of assets. For instance, you can have 30% of your investment in bonds, 30% in stocks, and the remaining 40% in real estate.

Holdings

Your holdings are the specific assets in your investment portfolio.

Asset class

An asset class is a group of similar assets, e.g. stocks and bonds. Assets in the same class usually have different risks and different returns for the investor even though they are similar in nature. For instance, if you invest in an IPO or initial stocks offering by Facebook, while buying a couple of stocks from Apple, what you are doing is investing in different assets of the same class (safe stocks of highly established companies). While the two assets are stocks, they would differ in value, risks and return on investment.

Equity

This refers to investment in an asset in form of partial ownership of an entity. Stocks are the most common form of equity investment.

Securities

A security is a tradable financial asset. It represents the asset that you have invested in, especially if it is in bonds or stocks. Bonds are called debt securities while stocks are called equity securities. Bonds are IOUs or debts. You are in effect becoming the lender to the issuer of a bond (corporation, government etc).

Return on Investment (ROI)

This is the value you get back for investing your money in an asset. Your returns can be in form of increased value when you sell your asset in the future or in form of regular profits or dividends.

The Stock Market

Basically, the stock market is a system where shares, derivatives, options and similar financial instruments from different companies are issued, bought, and then sold.

All across the world, there are stock markets where millions of stocks from hundreds of companies are traded on a daily basis. There is a lot of speculation in the stock market. There are investors who buy shares of a company, in the hopes that it will perform well in the future. There are also investors who sell shares of a company, when they believe that the company will perform poorly in the future or if this is the best time to cash out on the gains.

In the US, we have the New York Stock Exchange (NYSE) where public stocks from American companies are traded. The trade in stocks and other securities is regulated by the government through the Securities Exchange Commission (SEC). In the past, stocks have been a highly attractive investment in the US because the share price of most traded companies kept increasing. The market was bullish in the 1990s through the early 21st century.

This trend started reversing with the bear market of 2000 to 2002 as the tech bubble burst but markets hit a new high in 2007 with soaring stock prices. Stocks crashed abruptly in 2008, not only in the United States but across the world. Today, stocks continue to be a widely popular and smart investment choice. The market is beginning to look good again. Both the S&P 500 and NASDAQ are showing good indices. Analysts hope the positive trend will last.

Due to the frequent bombardment of information by the media, the market is more volatile than it used to be. However, if you want to be a successful investor, do not follow the headlines, but the trend lines and fundamentals. The perceived value of a company can be artificially manipulated and bloated by several percent! However, its true value may actually be just $2 per share, even though the market is trading it for $3.50 or higher. If you are new to the game? Stick with companies with justifiable and solid fundamentals instead of volatility in prices easily swayed by public opinion and other market forces. In that way, you are playing safe.