The stock market can be a scary place and if you are considering entering the world of investing, it is good to be a little apprehensive. The stock market is not a game and fortunes are lost there every single day. In many ways the stock market is like gambling, you can get addicted to the feeling of seeing your stocks increase in price. If you get too addicted you will put too much money in and if you lose that money you could be in trouble. Follow our beginner tips for the stock market and it may help in your understanding.
Let’s first explain what the stock market actually is. Some people think the stock market is found on Wall Street in New York. Others think that it is a warehouse full of items or stock. Neither is technically true. The term stock basically means supply. While your shop at home may have a new stock of computers it means they have a new supply of them. The stock market is a supply of money market. Companies engage in the stock market when they want to increase their money supply. The stock market doesn’t have a physical location but Wall Street is the financial center of the US market so is often seen as the physical embodiment of this place.
A company has a number of ways of raising money. It can borrow from the bank. This is a good option to take but it means that the company will now have debt. It could seek out a number of investors but often these investors charge a high price, a high percentage of the company or high returns, see Dragon’s Den. The other common option is to place the company on the stock market. This allows individuals to buy shares in the company which can be used to finance the company without giving too much control away to one individual. If you buy a stock in a company you are essentially becoming a part-owner. In most cases, though the stock you buy will be too small to have a real say in what the company does. Although every year there are votes held that shareholders (the same as stockholders) can take part in.
Buying stocks is risky because the price chosen by the company doesn’t always accurately reflect the current value of the company and there are many external factors that have an influence. If we take the Tesla stock as an example. Many people may buy this stock because it is a company building a future solution. A good stock to have in a long term strategy. However, their owner, Elon Musk, is known to act on impulse and can make decisions about the company that can impact the worth quickly. Musk has put out single tweets in the past that have caused the value of the stock to dive. At present, the stock is increasing quickly because the company has announced they will start to manufacture commercial trucks.
The market is effectively all about knowledge. If you are well informed about a company and know they will do well in the future, it is a good stock to hold. If someone tells you a company is a good stock and you know nothing about them, it is a risk, as you will likely be the last to know when to cash in as well.
The terms bull and bear market often appear when discussing stocks. One of these means a market is falling in value, the other means it is increasing. Based on the animals it can be difficult to know which is the good one as both are somewhat aggressive in nature. The bear market is seen as the slow market where prices are falling. Consider how a bear stalks its prey in the wile. The bull market is seen as one that is increasing quickly, consider how a bull rushes at its opponent. If that doesn’t work just remember that on Wall Street there is a statue of a massive bull. Wall Street would never put up a statue of a falling market, so the bull is the one that grows.
The stock market is a great place to learn about business and make long term gains that are greater than a savings account. However, only ever place money in the stock market that you are willing to lose. This may not be a casino and the house doesn’t always win, but the average person does often lose.