Understanding the Stock Market for Dummies

Understanding the Stock Market for Dummies

Posted on 05. Jul, 2010 by in Stocks

You may have heard a thing or two about this thing called the stock market. After all, it’s kind of hard not to since it’s something many people have used throughout the years to make a lot of money. Sadly, many people have lost a lot of money in the stock market too. And wasn’t there some kind of stock market crash that caused the Great Depression?

It seems like the stock market is constantly in the news. Journalists are constantly reporting about how this stock price went up while another went down, and so it goes…without ceasing. Perhaps you’re just curious about this thing you hear so much about. Perhaps you’d like to learn how to make some money in the stock market. Regardless, a good primer on the stock market, its history and how it works is always good place to start.

At its most basic element, the stock market is a public market where anyone can purchase or sell shares of thousands of different companies.  Would you like to become part owner of Apple?  Or perhaps have an ownership interest in Ford Motor Company?  You can.  If you purchase only one single share of a company’s stock, you just became part owner in that company.

Owning stock in a company can be a very interesting experience.  You will receive periodic reports from the company on its financial strength.  Since you are part owner of the company, the CEO has to report to YOU on how the company is doing.  Stock owners are also often able to cast votes on important company issues.  When this is done, you will typically receive information on the issue in the mail and a form to return with your vote.  Finally, and this is a really good one….there are many stocks that pay a dividend.  A dividend is simply another name for a profit.  Since the purpose of a company is to create wealth for its owners (that would be you), many companies that are profitable periodically return a portion of that wealth to its owners while reinvesting the remainder to make the company stronger.

The reason most people buy stock, however, is to sell it at a later date for a profit.  This is done by carefully examining the stock’s history to determine if it’s at a low point.  The investor will also take a look at where the company is going to see if it has the potential to pull out of its slump.  If the answer is “yes,” the investor will purchase shares of the company’s stock with the belief that it will be valued at a higher price some time in the near future.  That is how most people make their money in the stock market, buy low and sell high.

Learning the stock market for dummies is really not that hard.  In fact, you don’t have to be a dummy at all to get it.

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