Learn the Basics in Stock Market Investment

Learn the Basics in Stock Market Investment

The stock market is the modern day marketplace. It is a sophisticated venue where buying and selling of shares happen and actively traded. 

Before one become adept in the stock market investment, it is important to learn the basics of investing first. Simple legal and financial theories and concepts should first be understood by a novice who wish to embark in a stock market investment.

By definition, a share of stock represents a small portion of ownership in a company. Thus, if you have ownership over a share of stock then that follows you are a part owner of a certain company. If said institution experiences a legal setback and the court adjudges that it pay a big judgment award, the legal consequence is that the stock in your possession becomes a meaningless piece of paper. The upside: the creditors cannot run after your personal properties. 

Shares of stock come in two kinds: Common and Preferred stock. A lot of the stocks actively traded in New York Stock Exchange are common shares of stock. Preferred stocks are those with preferred status when it comes to distribution of dividends.

So what do you get in investing? Investing in stock market is a financial tool where you can earn profit and make more money. As financial gurus would say, it is your money working for you. Financial investment is different from mere saving money in a bank. Saving is a lot more passive with very little action on the part of the individual albeit it uses the same financial concept of compounding. The concept behind saving is that is more concentrated on the safety of principal rather than the return of it.

Investing in stocks denotes that you are partial owner of a company. Whenever the business enterprise distributes profit by way of dividend, you will also get the dividend as shareholder. This is labeled as dividend income – an ideal investment strategy for passive income. This is most ideal for retirement income planning. 

So how should you go through doing some portfolio management in stock market?

Learning the basics in stock investment entails scouting around for different business enterprises and their products. Get a fair amount of knowledge to those products and establishments. Try to comprehend the business model of those businesses. 

It is also salient to understand company’s financial statements such as the balance sheet and the profit and loss statement. Peruse over the profitability in the business enterprise, its cash in hand, auditor’s report and director’s. Try to appreciate the business model of the enterprise and the credibility of the management team. Examine the return on asset, data on price/earning, return on equity and credit management of the business enterprise for the last give years. 

If the comprehensive study in the company will yield positive feelings for you, then you can invest in said business enterprise. Your investment philosophy is to own a tiny portion of the business for a period of time. This frame of mind will potentially rake in profits for you in the long run. In the high bull market do partial profit book regularly. If the market sentiment is largely bullish, then buy option. But if market sentiment is bearish then buy put option. Utilize five percent of your money in option trading. Option trading is a financial instrument which is geared in hedging your asset which can yield some speculative gain.