Stock Market Investing Principle 4
How does the stock market work?
Before you get your start in the stock market, you must attempt to gain a broad understanding of how it works.
Does the stock market work? A valid questions, but we need to learn what we are acutally buying when we purchase stocks.
Educate yourself about where your money is being spent.
You are in fact trading your dollars for something that could go up or down
in value. Try to gain a full understanding of what type of investment
you are making and how it will pan out over the years. In fact the
stock market has returned an average 12% over the
last 60 years!* What other type of investment can say that.
There is no secret special way the market
works. To some it may seem mystifying, but it is a simple buyer and
seller type auction. A seller has a stock that they are willing to
sell for a price. A buyer can "bid" on what they want to
pay based on several different criteria. If the two prices match up, a
transaction is made. The stock price should
be based on how well the company is performing, but other factors can take
control ie, bad publicity, unfavorable company actions, and/or large
lawsuits that pose a negative image of the company.
Sometimes, one of the hardest thing to do
when investing in the stock market is to do
nothing at all. If you are always buying and selling on whims vice
your solid market analysis, then you are likely to fall victim to market
timing and that in the long run can mean lower returns with your portfolio.
The preferred method is to conduct a thorough market analysis and seek long
term investments with profitable companies with we will talk about in the
next principle.
*performance is not a guarantee of future results.
Principle #4