Stock Market Basics

by Chris Scarcetti

If you hear somebody declaring very modestly that he has been dabbling around in the stock market almost like a dilettante, take that declaration with a pinch of salt. Dabbling is definitely not something you do, in relation to the stock market. Stock marketing is an extremely serious business, which is either going to make your profits if you understand it well or is going to bankrupt you if you went against good advice and made some really wrong and bad decisions.

Stock market trading can almost be supposed to be an obsession. You are buying shares in the stock market and waiting for the price to rise, so that you can sell them at a profit. Some people say that they make a profit every day by getting into the market, buying shares and selling them at the end of the day. This comes under the category of day trading.

Now let us come to some important Stock market basics.

The moment you look at the financial page of your newspaper, you see a number of companies with their share prices listed next to them.

You are investing in the future of the company, when you buy some shares in that particular company. So, selling your portion of the company the very next day means that you are not bothered much about the company's potential on a long-term basis. You wanted to make short-term profits and you did that.

Microsoft stockholders who bought stock in the 80s can come in the multimillionaire range now, but they are wisely holding onto that stock because they know it is an extremely rich investment. This comes under the category of a long-term investment.

The moment you bought some shares in a company, you can consider yourself to be a shareholder. You are thus entitled to vote on future company policies as well as get a dividend. Some companies are going to give you a fixed dividend every year, while other companies may make such huge profits, that they can afford to give you a dividend every 6 months. On the other hand, if the company is running at a loss, you may want to sell your shares in the company before the price of the company's shares fall further.

The shares which were going to buy in the market come under the heading of common stock. Buying some common stock means that you are a part shareholder of the company's assets. The value of the company is going to go up, if it has more assets. These assets are going to generate more money to make more profits. This is ultimately going to benefit every single shareholder with shares in that particular company, in the form of dividends.

Imagine that a company wants to expand its business. It needs money for doing so. It is going to put some shares in the market, on a given value, called "Par value" of say USD10 a share. You bought hundred shares in the company by investing USD1000 in the future of the company. Use the help of a financial expert who can advise you about making wise investments for your money. Remember the most important point of stock market basics -- just utilize that money, which you can afford to lose, while you are investing in stocks.

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