The Basics Of Stock Market Investing

Learning the basics of stock market investing before risking any of your own money can only be a good idea. The majority of people who lose money in the stock market do so for one of two reason, greed or lack of education, or possibly both.

Lets start with the very basics of stock market investing, a stock or a share is a part of a company. When you buy a stock you are buying a piece of that company. There are two ways you can make money here, the first is that the company increases in value or grows and becomes worth more, your share or stock in that company also becomes worth more (should you sell it). The second way is that the company you have invested in shows a profit, in which case you are entitled to your share of that profit.

The same can obviously be true in the reverse, and you can equally lose some or all of your investment.

Historically the stock market has shown the best return of all investment options and is well worth considering. It can also be very risky if you don’t do your homework. There are essentially two way you can go about this.

A mutual fund, This a where you buy into a portfolio of stock picked for you by a fund manager. This is the best option if you do not have the time or inclination to do the research yourself. These have shown good rates of return in the past and the stocks are picked by experts. You can usually pick the level of risk too, high, medium or low risk. The draw back is that you are relying on somebody else to manage your money. The second option is to:

Trade yourself, this is very easy these days with the advent of the internet. Many company’s offer electronic trading at very affordable rates. The advantage to this is being able to pick your own stock and manage your own portfolio. The disadvantage is that it can be risky if you don’t know what you are doing.

The basics of stock market investing begins with being able to value a company, this is critical, it’s like buying a house, if you know that a certain type of house is consistently selling for a certain price and you see that type of house for sale at a lower price, you know you can buy it and make a profit. The same is true with stocks if you can determine standard market prices, then you can grab a bargain when you see one. The secret then is to learn how to price stock. This is beyond the scope of an article but Phil Townes book “Rule #1 Investing” covers this in great detail and I highly recommend reading it. It covers warren Buffets method of investing, probably the richest man in the world!

If you cannot value a company then you do not know if you are getting a good deal or not, not good.

The more time and effort you spend on this the better your results are going to be.

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