Introduction

Okay, let’s get started in learning about the stock market. Everything is now working in favor of individual investors to learn about stocks. The Internet has opened up a new world. Online trading has altered the average investor’s engagement in managing their own stocks. The availability of company information has become so widespread that researching and finding stocks to buy and sell is as easy as logging onto your computer. Buying a stock for the long term means that you want to own part of a company and you think that in the future the company will generate positive cash flow and be profitable. If you buy stock in a company and the company performs well, the stock price should go up. If the company fails, then the stock will go down.

Companies list their stocks on the various stock exchanges located throughout the U.S. The stock exchanges actually compete with each other for these listings, since companies that attract more trading make more money for the stock exchange that listed it. Company stocks are assigned a trading symbol, commonly called “ticker”, by the listing exchange. Some well-chosen tickers are easy to remember, like “GE” for the company General Electric, a highly diversified blue chip. Some companies’ ticker is the same as its name like Nike for example. You need to know the ticker of a stock in order to access information about the stock and eventually invest in. The different stock exchanges are a very good place to start getting information on stock investments. Following web sites:

The American Stock Exchange

The Nasdaq Stock Market

The New York Stock Exchange

The Pacific Exchange

The Philadelphia Exchange

are good places to start. Aside from being important online source, some of the exchanges listed above provide free seminars about investing. The Securities and Exchange Commission (SEC), the watch dog and regulator of the securities industry, also has an investor education program and you can get more information at its web site at http://www.sec.gov/

Bulls and Bears

It is practically a jungle out there, when it comes to investing. And, like any jungle, there are quite a few species to be found down on Wall Street. Investors’ favorite animal is understandably the bull. The term bull describes a period in which prices rise for a extended period of time. When it comes to people, bullish describes one who is upbeat. A bullish investor is one who buys a stock in the expectation that its price will go up. This could be compared with bulls charging ahead, stampeding prices higher. To be considered a bull market, prices need not rise continuously. There can be days, weeks and even months in which prices fall but what counts is the long-term trend. On the other hand, the Wall Street’s least favorite animal is the bear. This term is used to describe down markets. In the old days, when traders used to sell bearskins before the bears were actually caught, the term eventually applied to people who expect prices to decline. As for how much of a price decline constitutes a bear market, the rule of thumb is at least 20 percent. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually comes with a bear market. There are other animals down on Wall Street. For example, there are dogs, as in Dogs of the Dow. This is an investment strategy that calls for buying the 10 stocks with the highest yield among the Dow, altering the portfolio annually as required. Others are: CATS (Certificates of Accrual on Treasury Securities), LYONS (Liquid Yield Option Notes) and TIGRS (Treasury Interest Growth Receipts). A recent addition to the Street’s zoological garden is SPDRS (pronounced spiders), which enable investors to take part in the price performance and dividend yield of the Standard & Poor’s 500 Index by purchasing shares at a price equal to roughly 10 percent of the value of this index. While buying and selling stock, investors must be on the lookout for donkeys and elephants, representing the two major US political parties. The government certainly plays a big role in Wall Streeters’ lives. Sometimes Washington even makes monkeys out of traders by changing the rules in the middle of the game. There are two other animals to keep watch for. Ostriches are investors who stick to their old strategies, unmindful to changes in the world around them. And then there are the hogs, investors who are too greedy and are usually slaughtered.

Preparations Before Investing

If you have decided to go ahead and start learning about the stock market, where do you start? Thanks to in Internet, you can find out a lot by just surfing. It is suggested by many financial experts that before you lay down any hard-earned income, you need to first research a few stocks to see if they are sound companies that have the potential to earn money and grow over time. One of the best sources of information about a public company is in its financial reports, like an annual report, a quarterly report, or a special filing with the Securities and Exchange Commission. All these reports are usually available online at each company’s web site, or at the SEC’s free EDGAR database online. Studying the annual report or looking at a company’s earnings report can tell you a lot about how the company is doing and, in some cases, what they have in the pipeline that will help it in the future. And there is some quick math you can do to test a company’s health. You may have heard of “earnings per share” or “profit margins” or “price-to-earnings ratios” and you should familiarize yourself with a few of these terms. Another good source to find out more about a company are Wall Street analysts and stock brokers. Analysts and brokers are generally employed by a bank to give their opinions on a stock. Some say you should buy, or hold, accumulate a particular stock, but if you look beyond the opinion there is sometimes hard numbers and much research to read up on. A good strategy is to use analysts and brokers to get information about a stock and then to check some of the numbers for yourself prior to investing. Follow what analysts are saying and how it affects a stock. Some analysts carry a lot of weight and what they say can move a stock significantly. Others are just dead wrong about a stock over and over again. If you are thinking of investing for the first time, look for a company that has been out for a while and is paying dividends, low debt exposure and has a low price-to-earnings ratio. Older, more solid companies tend to have some history of excellent earnings and you can learn a lot by studying a company that has a good track record. Although history should not be heavily-weighed when making a stock pick, looking at what a company has done in the past can help you see how it may react to changes in the future.

Managing Risks

In learning about the stock marlet, you will need to learn what risks are involved in stocks especially if you plan on buying and selling them often. This is usually not recommended for an average investor. Although some people trade stocks for a living, it is not for everyone and can really be a dangerous enterprise that will eat up your savings in a blink of an eye. Make realistic goals about how much you may make on a stock over time. Some think that since they have been making 20 percent gains or more in the past couple of years, that this will always be the case. That is not very pragmatic if the market slows down and it is more difficult for companies to make profits. Do not take on more risk than you are comfortable with. Diversifying your stock portfolio, or investing in different stocks with different revenue streams is really the key. Make sure you spend a lot of time looking at the forest as well as the trees. And stock splits and other factors can really effect how your stock portfolio is weighed so set aside time to revisit your goals. Everyone is in it for the money, so it is not just you. Brokers, exchanges, fund mangers, and all. Use your broker or fund manager to find out exactly what you are getting into. Really find out how a broker or fund manager makes money off of you and what fees are involved. Go to the various stock exchange web sites or SEC’s web site and read up on regulations and risks. This is especially true when it comes to margin accounts, which is an account that is set up by a broker who lets you borrow money, pay interest on that money, and trade it as well. Margin accounts can be very risky, so learn about the stock market well and know the risks before signing up. The key to successful stock picking is doing your homework and finding out as much as you can about the company behind the stock. Really dig and do not give up. There are tons of free information out there and the more you persist in learning about stock market, the more you will be rewarded. It is a big line of work, which is why many rely of mutual fund managers, brokers and others to do the stock picking for them. But if you have the knack, the time and the money, nothing is standing in your way to do it yourself.