Those new to investing or learning about business have no doubt heard of the stock market. Many might be reluctant to participate in stock markets due to some of the risks it imposes. However, not all investments in stocks have high risks! If you are interested in learning more, below is a quick guide on the basics of participating in stock markets.
What Are Stocks?
Stocks are more than just numbers on papers — they are essentially tiny pieces of companies that you can own. When you buy a stock, you own a share of the company. When looking to invest in a stock, look beyond its numbers. Instead, try to find out more about the company; what is its goals and mission statements? Who is running the company? The answers to these questions are generally as important as numbers that show how well a company is doing.
How do You Pick Stocks?
There is no right or wrong way to pick stocks; how stocks are picked is usually dependent on an individual and how they want to invest. Do you have a particular company you believe in or an area of the market that you are particularly interested in? These are some questions that could get you started. However, because there are still so many logistics and research when it comes to benefiting from picking a stock, it is typically easier to start picking stocks with help from a financial advisor.
As previously mentioned, keep in mind that you shouldn’t buy solely on the price of the stock, but also look at how the company presents itself and their overall value. Stock prices are generally not good reflections of company value — you want to look at both stock prices and how many shares there are. A company with 100 million shares with stocks worth $50 have an overall worth of $5 billion, but a company with 300 million shares with stocks worth $25 have an overall worth of $7.5 billion.
How do You Buy Stocks?
To start buying and selling stocks, you will need to set up your own broker account. Like how you need to choose a bank before setting up a bank account, you will need to pick a broker firm so that you can set up a broker account. Look around and do some research to see which broker firms you would want to work with. Consider the pros and cons of each firm — can you walk in at any time to receive assistance? How do they let you deposit money into your account? How much will the firm charge you? Usually, a physical broker firm will get you more help, but there are also online brokering firms where the fees are generally cheaper.
Once you find a firm you are comfortable with and have set up a broker account, you can sell and buy stocks as you please.
Some Terms You Should Know
New to investing in stock markets? Here are some terms you should know so you can make the best choices with your investment.
IPO: this stands for Initial Public Offering. It is the first public stock sale from a company that used to be privately traded.
Dow Jones Industrial Average (DJIA): Often referred to as “the Dow”, this is a stock index that is most tracked in the world. It contains some of the most well-known companies worldwide, such as Coca-Cola and Microsoft.
Nasdaq: An American stock exchange, the second biggest in the world when it comes to market capitalization.
Preferred stocks: Those who hold preferred stocks get paid dividends first
Common stocks: Those who hold common stocks get paid dividends last, however, they have special voting privileges when the company holds elections for major corporate issues or changes.
Dividend: A company’s payment to its shareholders
Trading: Buying and selling of stocks
Investing: This is essentially the same thing as trading, but with a long-term connotation. For example, those who invest in stocks is hoping for a return in the future.
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