Basic Concepts for a Beginning Stock Market Investor

Many beginning stock market investors see the excitement of the trading floor on the evening news and hear the stories of their friends, neighbors, and co-workers striking it big on some stock. The reality is that stock market investing involves a significant amount of risk. For a beginning investor, it is important to fist understand the basic concepts around stock market investing and to learn about the various strategies for picking stocks and building a portfolio. Ultimately, each investor needs to choose an approach that fits their investment style and tolerance for risk. Investing in the stock market can, of course, be very lucrative for those who develop a solid understanding of the fundamentals conduct thorough research and analysis before investing.

What is a Stock?

A single share of stock represents a piece of ownership in a company. Companies issue stock in an effort to raise capital that can be used for expansion, acquisition, and other business purposes. As a shareholder (an owner of stock in a company) the investor has a say in how the company is run and have a vested interest in the success of the company as their hope is that the value of their stock will increase over time as the company grows and succeeds.

What is the Stock Market?

Stock exchanges facilitate the buying and selling of stocks by pairing buyers and sellers and determining the price of a stock. Some stock exchanges use actual physical locations to conduct stock trading; other exchanges leverage computer networks to facilitate trading electronically.

Why Invest in Stocks?

While there are many ways you can choose to invest your money, the stock market has, historically, provided the highest potential return to investors. Over the long-term, no other type of investment has performed better than stocks. Over time, stock market investing has outperformed CDs and cash investing instruments, bonds, and even real estate investing. On average, stocks have provided about a 10% annual return to investors.

What are the Risks Associated with Stock Market Investing?

Every beginning stock market investor should know that stock prices can vary, sometimes wildly, and that a significant or the entirety of a stock investment can be lost. Most stock investors seek to minimize this risk by developing a balanced, diversified portfolio of stock investments.

The Guide to Fundamental Analysis

For the beginning stock market investor, a good place to start is by downloading the Stock Research Pro “Guide to Fundamental Analysis for Stock Investing”. Sign-up is available from each page of this website. After signing up, we’ll deliver the guide to you via email, along with a series of daily video tutorials to introduce you to some of the basics of stock research, analysis, and valuation.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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