Monday, May 2, 2016

Investment Essentials: The Stock Market

It has come to my attention through emails that were sent to me that my investing 101/102/103 "courses" that I put on the side of my page weren't quite basic enough for a starting investor to learn bit by bit. That being said, it appears that I really need to back up to square one - the basic of the basics. If you have absolutely no interest in knowing the basics step by step, I will label them as "investment essentials" when a post is going to be discussing them. I will also be removing the investing 101/102/103 series and replacing it with a much smaller link that will contain a page for investment education specifically.

**Note: please read the disclaimer listed before continuing**

Investment Essentials: The Stock Market

What is the stock market? The stock market for all intents and purposes is a place where traders and businesses buy and sell stocks and other forms of investments. Different stock of different companies are listed on the exchange under ticker symbols which are basically just short forms of the company name in most cases so that buyers can locate them. For example, General Electric trades under the ticker symbol of GE. If you were looking to buy a portion of GE stock, one only have to search GE on a stock exchange and place a bid for however many shares you want.



Before I get ahead of myself however, I want to go into more detail into what a share of stock actually represents. A share of stock is basically a small piece of a company that was issued as a trade for capital (money) to be exchanged to the company. When a company needs money, they can issue stocks on the exchanges (New York Stock Exchange or others) in return for capital. These stocks represent a piece of the company and by ownership of a stock, one effectively owns a piece of the company. The company then uses the capital that was raised by the sale of the stock to fund projects or other things they may need the capital for.

If that company uses the capital raised well, they become a larger and more profitable company. When that happens, your share that was purchased could become worth more as it is attached to a more profitable company. Granted, a lot of it is intrinsic value but it is still very exciting to be an "owner" of some of your favorite companies. If then your stock price goes up in the company that you own a piece of, you can sell your shares for profits or hold on to it in hopes that it will gain even more value. Also, you could hold on to it in order to be paid dividends by a company that chooses to issue them - but I'll go more into that later. The key thing to note is that people purchase stocks to make their money grow faster than inflation (the value of your money going down) can diminish the value of it.

Keep in mind however that not all companies are listed on the Stock Exchanges. A company has to have had an "IPO" to be listed. An IPO is an Initial Public Offering. A company that is interested in selling stocks must first meet all the requirements of the exchange it hopes to list itself on for sale of stock before they can declare they will be selling shares of stock in that company. Once they have met the requirements, they then declare their IPO which is basically a fancy way for saying it is their first day selling shares of their company. Pretty cool, right?

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