Stock Market Investing For Dummies
The stock market is a highly speculative place and is downright over stimulating, full of energy, hoopla and hype of what businesses are truly worth. There is so much white noise that is associated with the market, it can down right make you go insane if you try to listen and pay attention to all of it. Fortunately, for beginners in the stock market that want to learn how to invest money in an intelligent and successful way, our newsletter is a great way to save research time and can steer you to make successful investment decisions.
The stock market is a creature in and of itself. At times it makes sense and at other times, no one can explain why it acts the way it does. What is clear is that, over the long run, the stock market will climb and climb faster than almost any other traditional investment. With that said, there are also moments (that sometimes last years) when the value of the stock market gets out of whack with the underlying companies and with the economy.
Investing in the stock market can single handedly turn an investment decision to a bad one overnight, literally. There are a lot of risks associated with investing in the stock market. However, if done properly with a sufficient amount of research, the stock market can be used as a great tool to build a substantial amount of wealth for any investor. The key to making solid financial decisions is to not take part in the hoopla and speculation that truly drives the stock market on a daily basis; you need to think long term. Make sure that in every investment decision you make, you have a long term horizon in your mind and you would be comfortable with owing the business that you purchase forever.
How the stock market works
The stock market is driven by supply and demand. The number of shares of stock dictates the supply and the number of shares that investors want to buy dictates the demand. It's important to understand that for every share that is purchased, there is someone on the other end selling that share (or vice versa). The stock market is really just a big, automated superstore where everyone goes to buy and sell their stock. The main players in the stock market are the exchanges. Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set the price of the shares. The primary exchanges are the NASDAQ, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Toronto Stock Exchange. Years ago, all of the trading was done through the traditional exchanges (like the NYSE, American and Pacific Exchanges) but now almost all of the trading is done through the NASDAQ, which uses ECNs and thousands of other firms with access to the NASDAQ to facilitate trading.
Why the stock market gets out of whack with reality
Over the long term, the stock market is driven by underlying economic, financial and global growth. But in the short run, the market is driven by simple greed and fear, which are dictated by human emotions. During periods of prosperity, the stock market often rises faster than underlying earnings. During tough economic times, political uncertainty, and low consumer confidence, the stock market often performs worse than the underlying fundamentals predict.
Beginners at stock trading should take the time to get the education they need in order to succeed. To begin with, make sure you understand how the Stock Market works. Start with the basics and work your way up. You did not pick up a book one day and start to read; first you had to learn the letters of the alphabet.
To be a successful investor, you will need to understand what fundamental analysis and technical analysis is:
- Fundamental Analysis relies on economic supply and demand information, such as a stocks annual growth rate, and quarterly earnings. This can be very time consuming by reading each company's financial reports. Because of this, we have created our investment newsletter.
If you are going to be trading in the markets you should not be with out a subscription to The Wall Street Journal.- Technical Analysis is the study of time, price, and sentiment. The tool used for this is charts. Charts show a stocks price history, and with practice we can see everything we need to know about a stock, just by looking at the chart.
The last and most important thing that you are going to need is a financial newsletter like ours. Our newsletter is composed of our valuation techniques that are based off the sound financial statements of publicly traded companies and will save you an immense amount of time in your research. We essentially have done all of the hard work for you by researching each and every company on the New York Stock Exchange, NASDAQ, American Stock Exchange and Toronto Stock Exchange and calculating what they are truly worth. By using our opinions on what companies are truly worth, you can essentially use our information and ratings to use as a filter to help assist you in your investment decisions.
Visit our pages to learn more about our valuation techniques, the fundamental investment philosophy that we recommend and how to use our calculations in our newsletter.
Recommend ways to invest in the stock market
- Don’t try to time the market. As tempting as it is to try, it is not possible to time the stock market. People have written millions of pages of research on this topic and NO ONE has ever found a legitimate way to determine its trends.
- Use cost averaging. By buying stocks on a periodic basis (like once a paycheck, once a month or even once a year), you will always be buying at an average price. If you try to time the market, you may be buying at a high or low valuation.
- Take taxes into account. When you buy stocks, try to hold them for more than one year so you get taxed at the long term capital gains rate, which is currently 18%. If you sell your stock before one year, you will be taxed at your ordinary income tax rate, which is almost always higher than 18%, sometimes twice as high.
- Invest as much as possible into tax-sheltered 401K, 403B and IRAs. By investing in tax deferred plans, you are able to invest money and not worry about the tax implications. With 401K and 403B plans, you get to invest your earnings before taxes, so the investment will grow on a higher base. Also, many employers offer matching investments. Put as much as you can into these tax deferred investments such as an IRA or Roth IRA.
- Diversify your investments. Don't just invest in stocks. It is better if you diversify your investments into other asset classes including real estate (a house), cash (savings account or CD) and maybe even bonds. That way, if one asset class really underperforms, you will have some exposure to the better performing assets.