subject: Basic Information On Stocks [print this page] You have probably heard that investing into the stock market is a good way to build your wealth. But what exactly is the stock market and what should you know about it before you invest your hard earned money into it? Here are some stock market investing information and explanations
Stocks are basically small portions of a company. If the company is split up into 1 million shares of stock and you buy 10 shares then you own 10/1,000,000 of the company and are partial owner of that company.
As time goes by the stock will appreciate and depreciate depending on how fast the company is growing and how much supply and demand there is for the stock. If the company is growing at a fast rate then more people will buy the stock and the price will increase.
Stocks can also make money for their investors in a second way. Dividend paying stocks are stocks that pay you a small amount of the earnings. These earnings can make you some extra money on the side and as the company grows and starts to prosper their dividends will continue to increase meaning more and more cash flow for you.
This just leaves one question. How do you find strong stocks that will appreciate over the long term? There are a lot of strategies out there but probably the most effective long term strategy is called value investing.
This involves buying stocks in companies that are already well established, but their stock is just not at a fair price. In other words their stock is undervalued.
Value investors will take a look at fundamental ratios like the Price to Earnings Ratio and the Price to Book Ratio to match up just how much the stock is trading for compared to their fundamentals. They can then compare that number with similar companies to see if it the stock is high or low.
Another good idea is to simply look at what the company is and determine if it is likely to be around for the long term or not. If the company will probably not last the next 10 years then is investing into it for the long term a good idea, most likely not. However if it can still grow then it might be a different story. At the end of the day, you have to decide what you consider to be a strong investment and what you will consider worth investing into.
