Table Of ContentSTOCK MARKET INVESTING FOR
BEGINNERS:
THE DEFINITIVE STOCK
MARKET CRASH COURSE –
FROM ZERO TO HERO.
By Warren Ray Benjamin
Table of Contents
Introduction
Chapter 1 - Basic Information About Stocks
Chapter 2 - What Is A Stock Market?
Chapter 3 - Why Invest In Stocks
Chapter 4 - How To Get Started With Stocks
Chapter 5 - Terminology
Chapter 6 - How Would You Choose Stock For Your
Portfolio?
Chapter 7 - When Do Stock Prices Go Up Or Down
Chapter 8 - When Is The Right Time To Buy And Sell
Stocks?
Chapter 9 - What Investing Strategy Should You Use
When Investing In Stocks?
Chapter 10 - How Much Money Do You Need Before You
Start To Buy Stocks?
Chapter 11 - What Is Expense Ratio?
Chapter 12 - How To Understand A Company Value and
Company Fundamentals
Chapter 13 - Recognize Risks And Volatility
Chapter 14 - Following and Anticipating The Trend
Chapter 15 - Panoramic On Penny Stocks
Chapter 16 - Ten Investments And Strategies Good For
Stocks
Chapter 17 - How To Avoid Beginners’ Mistakes
Chapter 18 - How Do You Open An Account?
Chapter 19 - Online Resources And Brokers
Conclusion
Introduction
Financial independence is a goal many of us have, but the outlook is
bleak for how to gain it. You can strive to work 40 hours a week, own
your home, but have a mortgage to pay, and never gain financial
independence until retirement. You may even work more than 40
hours a week by picking up extra shifts, but with a family to raise,
paying off your debts is difficult.
The goal is to make the information extremely simple for you, so you
can move through with ease and begin investing in a few short
months. The topics will take you through a history of the stock
market, how it works, and the various exchanges and indexes that
allow you to invest in the market.
It is difficult to believe there was a time when the stock market didn’t
exist. The stock market is on the tip of nearly everyone’s tongue.
Even individuals who do not invest at least know it exists. It is mostly
understood that the New York Stock Exchange is the biggest market
of them all, with any company listed on it that wants to be recognized
globally. However, how did the stock market come to fruition? Is
there more than the NYSE (New York Stock Exchange)? There are
more exchanges, and it started with the Real Merchants of Venice
and British Coffeehouses.
Europe was filled with moneylenders that filled in the gaps of the
larger banks. Moneylenders would trade between themselves. One
lender might get rid of a high-risk, high-interest loan by trading it to
another lender. Moneylenders also purchased government debt. In a
natural evolution, lenders started selling debts to customers who
were looking to invest.
Investors also put their money into ships and crews. Most of the
time-limited liability companies would go on a single voyage to gain
merchandise from Asia and the East Indies as a way to bring a profit
to the investor. New companies were usually formed for the next
voyage to reduce the risk of investing in ships that could end up in
disaster. The East India companies worked with investors by
providing dividends made from the goods that came in. Stocks were
now in place, where the first joint-stock company was created. At the
time, there were royal charters that made competition impossible,
and thus investors gained huge profits.
It was not without its troubles. The stock market is based on
economic stability. When instability reigns, the stock market can
crash because there is no liquidity, which is what happened during
the Great Depression. Everyone saw the banks failing due to debts
and little liquidity, which in turn caused others to suffer, businesses
too close, and stock shares to plummet.
The stock market formed from a need to have a place to conduct the
business of selling shares, which was already happening.
Governments needed to regulate stock sales, and prevent issues
like the SSC crash. Nevertheless, there was also greed on behalf of
wealthy citizens. There was a clear way to earn money from
someone else’s labor; thus, the stock exchanges were started.
Investors and traders sell stocks after the IPO based on the
perceived value. A company’s value can go up or down, which is
where investors make their money. A company’s stock price that
rises can provide a profit. If an investor has purchased those shares
and the price or company value decreases, then the investor will
lose money. Besides, the investors and traders will push the price in
an up or down direction.
Investors have one of two goals: investing in the short or the long
term. A long-term investment is based on a stock continuing to rise
in price. A short-term investment is to gain quick cash and pulling out
before the stock price decreases.
Mature companies offer dividends to their shareholders. If you have
stocks, then you are a shareholder in a company. If you hold the
stocks long enough and have enough stock in a company, you can
vote on new board members. Dividends are company profits that you
get a cut of.
Investors will make money on price fluctuations and dividends. A
seller is often trying to gain a profit by selling to a new buyer. The
new buyer is also trying to buy-in as low as possible so that when
the stock price continues to increase, they will make a profit.
The profit is calculated by taking the initial buy-in price and
subtracting it from the closing or sale price. For example, if you buy
into Google at $400 and wait for it to go up to $600, then the profit is
$200 per share.
Sellers can push the price down due to supply and demand. This
financial market works based on supply and demand.
You should already know that in economics when there is an
oversupply of a product, the price is low. There is no demand for the
product; therefore, a company or, in this case, a stock is not of
interest.
When there is an undersupply of something like a stock, the demand
is high. With more interested parties, a price will continue to
increase.
If there is an even amount of supply and demand, then equality
exists, and there is no movement to see.
For the stock market, when too many people sell a stock, the price
will decline. When too many people buy a stock, the price will
continue to rise. If there is an equal number of shares and interests,
then the price usually trades sideways because there is a balance.
As you learn about the stock market, you will hear the word volume,
often. Volume is the number of shares that change hands daily.
Millions of shares can be traded on the stock exchange in a day as
investors attempt to make money from increasing or decreasing
prices.
The stock market works based on the interest or volume of traders. If
a stock does not have any volume or very little, then it is not actively
traded; thus, the price is not moving. Traders such as market makers
get into the market to buy or sell stocks for companies with low
volume. They do not stop a stock from rising or falling. Instead,
market makers are just trying to garner interest in the company’s
stock.
When it comes to the stock market and traders, most individuals are
looking for the high volume trades, with fluctuating prices. They get
in, make a profit, and get out finding the next big profit.
Chapter 1- Basic Information About Stocks
What Is Stock and What Types of Stock Are Available
People like to throw around the word stock. However, most people
don’t understand what it means. For the record, let’s clarify the
meaning of the word so that you understand what you’re getting into.
Stock is an ownership stake in a company. When a company issues
stock, it divides the ownership into portions called shares. You buy
an ownership stake in a company by purchasing shares of stock, so
if you purchase shares of Exxon, which means that you are one of
the owners of Exxon that entitles you too many things, including a
share of the company profits as the fortunes of the company
improve, the value of the shares increases because there will be
more demand for ownership. If the company experiences bad times,
or the economy starts doing badly, investors will start selling off their
ownership stakes. That means supply will exceed demand, causing
prices to drop. Since owning shares in the company may not be
seen as profitable, the prices have to drop to attract new buyers.
Publicly traded companies issue large numbers of shares, and they
are traded on regulated public markets called stock exchanges.
There are two general classes of stock. These are:
Common stock: This is what most people are referring
to when they use the word stock. A common stock gives
you an ownership stake and voting rights in the
company. Voting will occasionally take place when
shareholders have the opportunity to vote on important
company decisions. Shares of common stock entitle the
holder to receive dividends. But not all companies pay
dividends, as we’ll explain in a moment. Something to
keep in mind is that common stockholders are last in
line if a company decides to liquidate or declare
bankruptcy.
Preferred stock: These are special shares that are, in a
sense, more like bonds. Preferred stock does not confer
voting rights, but there are other advantages to owning
the preferred stock. In some cases, companies will
guarantee the yield paid with dividends. Preferred stock
also confers some rights not available to common
stockholders, such as being ahead of them in line when
a company goes bankrupt. If a company goes under,
creditors and bondholders will get paid first. Then
preferred shareholders will get paid, and finally, if
anything is left over, common stockholders get paid.
Most companies don’t issue preferred stock. Some
companies in the financial sector, like Bank of America,
offer preferred stock.
An Overview of the Basics
Let’s begin by focusing on the keys to successful stock investing.
You will be surprised that there isn’t any mystery. Successful
investing revolves around two key ideas.
The overall market trend is rising. Over time, the stock
market always increases. Although it’s easy to panic in
the heat of the moment, history shows that sudden
drops in share prices – even when they are prolonged –
are always followed by gains that take the market to
new heights. For long-term investors looking to build
wealth, the trend in the market is always up.
The stock market is volatile, and some stocks are more
volatile than others are. That means that share prices
can move up and down rapidly for some stocks, while
prices are more stable for others. Learning to recognize
volatility and use it to your advantage is one of the keys
to successful investing. Many new investors don’t
realize that it’s easy to get hard data on a stock’s
volatility, and you can use that to your advantage.
Picking individual stocks isn’t that hard. Many new
investors are intimidated by having to pick their stocks.
For some people, it’s too much, and they’d rather have
a professional money manager do it for them. However,
it’s not that complicated. We’ll teach you some key
characteristics a company should have before you
invest. That will make picking stocks to grow your
portfolio much easier.
Diversification is easy. A strategy called diversification
can be overwhelming when you consider the prospect of
having to pick a large number of companies to invest in.
However, exchange-traded funds make that easier than
ever. They are like mutual funds but trade on the stock
market. That means you can invest in a wide array of
assets and indices without having to hire an expensive
money manager. Since they trade like stocks, they have
more liquidity, meaning that you can get into and out of
your positions fast, if need be. We’ll show you how to
increase the diversity of your portfolio using these
wonderful and profitable tools.
Income investing is easier than you think. Many
investors like the idea of having a large portfolio that
generates income in the here and now for them. If you
are just getting started, that can seem like a faraway
dream. However, we’ll show you fun and exciting ways
that you can generate income in the here and now.
