The Learning-to-Invest.net Basic Investment Guide by Paul Jorgensen - HTML preview

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Section 3
Getting Started: Understanding the stock market

Now that we’ve discussed what you need to do to stabilize your situation through an emergency fund, insurance, and the elimination of debt, it’s time to discuss what you’re here to learn about: investing your money to make it grow.

There are many kinds of investment products, but let’s start basic and talk about investing in the stock market. We’ve all seen the stock market on tv. We see guys shouting at each other and getting all stressed out over something. But what is going on in that scene?

What is stock?

A stock represents ownership of a piece of a company. One unit of ownership is a share. So if I turned learning-to-invest.net into a company, I could decide to sell part of the company in the form of stock shares. If there were 1,000,000 shares of learning-to-invest.net, then owning 1 share would give you 1/1000,000 ownership of this awesome website! Why would I sell part of my company in the form of shares? Likely because I needed a large amount of money to expand my company. So by investing in the stock market you are buying
ownership in a company
. Are we clear here?

Why are there guys on tv running around screaming and giving themselves migraines over these tiny bits of ownership? Well, stock prices fluctuate constantly, according to supply and demand. If lots of people want to buy a stock but few people are selling, then the price will increase. Conversely, if few people are interested in buying the stock but lots of people are selling, then the price will come down. People are always trying to buy and sell at the ideal time to turn as big a profit as they can, or prevent as much loss as they can. That’s where all the volatility and panic comes from. In the

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chart shown above, you can see the stock fluctuating according to market forces.

You are probably wondering, why on Earth would I want to invest in the stock market if it’s so volatile? Well, some stocks involve much more risk than others. The above example of Pepsi Bottling Group is relatively stable and its general trend is upward. However, the amount of urgency in your investments depends on your goals and strategy as well. Some investors buy stock with the intention of selling it quickly to make a fast buck. To these people, the long term trend of a stock isn’t important — they want a short term profit.

These people may also sell to avoid a loss if the stock starts to drop, trying to protect as much of their original investment as they can. A long term investor can afford to relax and look at the stock’s general trend. When you are first learning to invest, you shouldn’t be messing around with buying and selling quickly like that. You want to be cautious and stable until you know what’s going on.

A beginner will want to stick with stocks that have a history of long-term stability and consistency. Have a look at some major companies that are household names on Yahoo Finance. Click on “symbol lookup” to search. Have a look at the long term charts and see which companies are the most consistent. I could just tell you, but then you wouldn’t learn as much as you will by looking it up yourself. Get into the essential habit of researching before you make a move.

In the next section we'll be discussing the safest way for beginners to invest in stocks!!