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Introduction to Stocks

It seems that just about everywhere you turn today, you hear talk about stocks. Mixed reports are out there. Some are saying it is a Bull market, others say it is a Bear market. You may not know Bear and Bull markets from a Fish Market. So before you start thinking you will make yourself a investing tycoon, you should really learn the basics about stocks.

What is a Stock?
Stocks or shares are partial ownership of a company. When you buy stocks, you are buying shares of a company. If you own one thousand shares you own a percentage of a company. Companies release stocks in order to gain quick capital. They sell off shares, or a portion of their business, in order to get cash that may be used to pay off debt, buy or repair equipment, retool, or any number of things. The most common stock is called "Common Stock." Common stock gives you the right to vote during board meetings and other privileges that go along with partial ownership of a company.

What is the purpose of buying stock?
When you buy stock, you are investing in the company or buying someone else's investment in the company. Your goal is to make sound investments that will increase in value so that you can sell them to other investors and make a profit. Sound easy? Buying stock is easy, it is deciding what stock to buy and when to sell it that takes study and practice.

What drives stock prices up?
The more successful a company is, the more likely the stock is to rise in value. The world is not that plain and simple though. Rumors of a windfall can drive stock prices higher than they should be, making a wonderful profit opportunity for those that are selling. It makes for a bad investment for those that are buying, since the stock will normally go down if the rumors prove to be untrue. Sometimes prices go up because the company has done better than expected, they are preparing to expand, or any number of reasons.

Can you only make money if stocks go up?
Traditionally, yes you only make money if the stock goes up in value. There are other ways of making money in stocks. Some companies are considered very stable. The price of the stock does not go up and down very often. Companies entice investors by paying dividends. A dividend is money that is paid per share owned. Dividends provide a way for the investor to make money, even if the stock does not go up in value. There are other, more risky, investment strategies. You can short a stock, which means that you are believing the stock is going to drop in value. You can buy options and other entry points. These concepts are better left to the more advanced investor.

How do I know if a Stock is a good investment?
You don't. It is that simple. You can make an educated guess. Looking over the business's financial reports, cash flow sheets, news, and other related items, you may see indications of a stock that will go up. There are a great deal of sources online that can provide you with basic training of investing in stocks. You should read message boards about investing, ask questions, and listen to the people that invest regularly.

What is a good way to buy stocks?
If your employer offers a 401K, that is your best way to understand how stocks work. Normally your employer will match a portion of your investment and the investment is pretax dollars. This not only decreases your tax liability, but is a great way for you to see how investments are made and how they effect your portfolio. A 401K provider normally gives you some guidance and explanation as to how you are invested and why.

How do I start investing on my own?
It is often recommended that if you have never invested before, but feel you are ready. You should enter into a stock market simulation. These can be found on many financial sites like YAHOO! You invest with fake money, but the results are based off of what the stock market is currently doing. It gives you a chance to think about how you are investing and if the risks are worth it to you. Once you have gotten to the point that you want to put money on the line, there are many online brokers that can assist you in buying and selling stocks.

The stock market is full of risks, but it also has a great deal of reward. Learning about the stock market can take years of study. Using the internet, investment guides, your own imagination and intuitiveness, you can come up with investment strategies for just about every situation. Not everyone will become a stock market tycoon, but as long as you do not risk more than you can afford to loose, you could find yourself on the winning side of many good trades.