In its simplest form, the stock market is like knowing the exact amount of chilli to add to your recipe. You don’t want something too bland, or something so hot that it sets your mouth on fire. Knowing the right amount requires knowledge and experience. If you want to succeed in the stock market, and at cooking–then knowing the right formulas will help!
Keep reading this article to understand the 10 most important facts about the stock market before making your first investment.
Fact #1: Calculated Risks Usually Mean More Rewards
People make money in the stock market by buying stocks1of companies they think are undervalued and will eventually appreciate. They can also buy options contracts or use margin lending to magnify their returns on investments.
Fact #2: You Have a many Options When It Comes to Trading Stocks
Shares of stocks trade on the stock market. This is where they can be bought and sold depending on what people are willing to pay for them at a given time. Shares also trade in individual companies, but only among those who have ownership stakes in that company’s shares (i.e., shareholders).
Fact #3: Buy Low & Sell High
The most basic way to make money in stocks is to buy low and sell high2. When a stock’s price drops, it becomes cheaper for those who bought the shares earlier to turn around and sell them at a profit.
Fact #4: Stock Charts Don’t Have To Be Hard
A chart is a graphical representation of how the price of a stock has changed over time. Charts are useful because they can help people make better decisions about when to buy and sell stocks, as well as which ones might be suitable for investment.
Fact #5: There’s No Such Thing As a Sure Thing
Stock analysts often make predictions about whether a company’s stock will go up or down. However, there is no such thing as a sure thing when it comes to predicting the future of stocks.
Fact #6: There’s No Perfect Metric
There are a number of different metrics analysts use to judge whether or not stocks will be profitable. However, there is no “perfect” metric that can predict future stock performance with certainty.
Fact #7: Dividends Are Your Most Trusted Friend
Dividends are payments that companies make to their investors. They’re a way for the company’s profits – and the investor’s investment – to grow at a regular rate, rather than relying on price changes in order to see growth.
Fact #8: There’s More to Stocks Than Just the Price Tag
One of the most common misconceptions about stocks is that a $100 stock must be more expensive than a $20 stock. In reality, it’s fairly typical for companies with lower market capitalizations to have higher price-to-earnings ratios3.
Fact #9: Taxes Can Cut Into Your Profit
Unless you are holding an individual stock that pays qualified dividends, or a mutual fund with at least 90% of its investments coming from stocks that pay qualified dividends, taxes will likely take a bite out of your profit.
Fact #10: Assess Your Needs & Goals
It’s important to know what type of stocks you’re buying, and how much the commissions will be. Some brokers offer commission-free trades for verified accounts or if you deposit a minimum amount into your account each month.
What are stocks?
Stocks are a share of ownership in that company. When you buy stocks, your investment is going toward the future growth and success of the companies with which you’re partnered.
What factors to consider when buying stock?
There are a number of factors to consider when choosing which stocks to buy. For example, you might want to find companies that have been around for at least 50 years and pay dividends, or high-risk stock with the potential for higher returns.
Is it safe to invest in stocks?
It’s safe to invest in stocks, but there are risks involved. Stocks can fluctuate up and down according to the company’s performance.
What are the benefits of being a stockholder?
The benefit of owning stock in any company is that you have an economic interest in its future performance.
You also may be entitled to voting rights. If your shares go up substantially, then you can sell them at a profit and reinvest this money into other stocks or assets.
The stock market is a volatile place, but it can be rewarding if you understand the risks and rewards. Investing in stocks will always have its ups and downs. A long term plan is a good ingredient for success. Make sure to do your research before diving into investing for the first time.