Learning About Investing In Stocks

You can buy stock in thousands of publicly traded companies, though chances are you will buy only a tiny fraction of the available stock in companies.

When you buy stock in a corporation, you become one of its owners. Yes you would now own a part of a corporation! If the company does well, you may receive part of its profits as dividends and see the price of your stock increase. You then might want too sell you stock for a profit. The profit being the difference between the price you bought and sold the stock. But if the stock price falls, the value of your investment can drop, sometimes substantially. Do you remember the Enron Corporation catastrophe? Their stock became almost worthless! In other words, you could lose money!

A stock has no absolute value. At any given time, its value depends on whether its shareholders want to hold it or sell it, and on what other investors are willing to pay for it. If the stock is hot, and lots of people want shares, the price may go up. If a company is losing money or a particular industry is doing poorly, those stocks may drop in value. Some stocks are undervalued, which means they sell for less than analysts think they're worth, while others may be overvalued.

Investors' attitudes are determined by several factors: whether or not they expect to make money with the stock, by current stock market conditions, and the overall state of the economy.

The caution that past performance is no guarantee of future profits is absolutely valid. Investing isn't about guarantees. It's about balancing risk with reasonable expectations of reward.

All markets will go through cycles. When the market is in a cycle where the it is rising, you call this a Bull Market. When the market is in a downturn cycle, you would call this market a Bear Market.

When the market is in a Bull Market, the market would be growing and charging ahead. Conversely, when in a Bear Market, the market would be retracting.

Everyone usually loves a Bull Market, because you can see your stocks worth grow, but in a Bear Market, you could lose a substantial amount of your stocks worth. This could be disastrous!

Dave