Today let’s talk about the stock market and cover the fundamentals you need to know before you get started trading. To preface this post, I would like to state that I am by no means a professional and I simply hope to provide information on how to navigate the stock market so that you, as a reader, may have a better understanding of how this complex market operates.
Before we get into trading, it’s crucial that we discuss what it means to buy a stock. When somebody buys a stock of a company, they are buying a small portion of that company. Basically, if that company increases or decreases in value, the stock price will reflect that change resulting in an increase or decrease in price, whichever it may be. So now that you understand what a stock is, let’s zoom out and look at how people use the stock market as an investment platform.
Everyday, there are millions of people buying and selling stocks, resulting in an ever changing environment where people are willing to pay certain amounts for different companies stock. This is where stock price is determined, as a share in a company is only worth as much as the investors will pay for it. This sounds confusing, but to put it simply, the investors perception of the market is what drives the market up or down. So how do people actually make money through stocks? Well, there are a magnitude of strategies and methods investors have practiced for decades, but there isn’t anything that works 100% of the time.
To make money trading stocks in the stock market, the goal is to buy stock of a company and then sell that same stock when the market price is higher than the price you bought it. You have then made profit through trading, but I hope it goes without saying that it’s easier said than done, and you cannot predict the market. This is where most investors go wrong, they think a companies stock will go up no matter what for whatever reason, but that simply isn’t true. Instead, experienced investors will use the previously mentioned strategies and methods to make calculated risks based on previous research.
Although I don’t have the time, nor the capacity to describe each of these methods in detail, I highly recommend the common strategy of buying and holding. This is a passive investment strategy which I mentioned in my previous post, but it doesn’t require extensive knowledge on analyzing a companies future. This should be fantastic news for beginner investors, because it allows for a less risky start in trading stocks. The reason the buy and hold strategy is the least risky option is because of the long term investment horizon which comes along with it. When you are using this method, you simply buy a stock which you think will perform well in the future, and you do not sell this stock. Regardless of if the stock goes up or down in price, you simply hold it, that’s it. This type of investment strategy is meant to build wealth over long periods of time, because the stock market grows an average of 8-10 percent every year. This is the most common method of investing, especially for the average person such as you and I.
In the end, the stock market is a complex, consistently evolving platform where investors can buy ownership in companies with hopes of making money through them. There is not simple trick to get rich, and there is definitely no “right” way to do it, but there are methods which alleviate risk and are beginner friendly. The buy and hold strategy is a great start if you want to learn the basics without constantly stressing about losing your money. I really hope this post helps people with no preexisting knowledge on the market, because I was that person a few months ago and it was really hard for me to find information simple enough for me to digest. If you have any questions about something more particular, I would be happy to share what I know. You can contact me here.