Investing in Stock Market- Beginner’s Guide
by: Daniel Webb
Basically, any stock market investor aims the same thing, that is, to increase the stocks in their portfolio. Therefore, the question would be how to determine the true value of a stock before purchasing it. The value of a stock will rest partly on whether it is likely to appreciate in value. Knowing whether capital appreciation depends likely on recognizing the factors contributing to this.
At the risk of stating the obvious, let us briefly go back to the basics.
First, what is a stock or a share? A share is a part of a company, and the act of buying a share is essentially an investment in the relevant company’s ability to generate profits in the future. Obviously, (in most cases) companies that perform well will see the price of their stock rise, and companies that perform badly are likely to see it fall.
Second, what is a stock market. A listed company in the stock market is composed of individuals who essentially have two objectives; One of these groups buy stocks in the company, while the other group wishes to sell these stocks to other buyers.
So what is the basis for linking the company’s performance to the value of its stocks? Indeed, on some occasions it seems that the linkage does not exist – markets can appear to act “irrationally” in their pricing of stocks. However, in general, a stock’s price reflects the market’s “sentiment” about the stock’s true value, and hence whether it should be bought or sold. Where there is an excess of buyers to sellers for a given stock, that stock’s price will rise, and where there is an excess of sellers to buyers the price will fall, until (in both cases) equilabrium is reached. (It is important to note that stock price for a given company can fall even in circumstances where the company’s performance improves, for example in cases where the company, despite performing well, has nevertheless failed to meet the market’s expectations.) As such, it is important for investors to acquaint themselves with a company’s underlying financial performance prior to investing in its stock.
What are the rules for successful stock trading?
An investor’s own intellegent judgement is important for the success of his investment in the stock market. The mentality of simply “following the herd”, that is, following the investment patterns of other investors, does not bring success in the stock market.
So what kind of investment process elements are under the control of the investor? Try as they might, investors cannot exert any significant degree of control over the market. Large financial institutions are the only ones which can affect the market in this way, and even those bodies exercise partial control only. Nevertheless, the way an investor acts in the market can be controlled through the use of their market information.
Therefore, what is the most efficient way for an investor to use information about the market to operate? The answer seems to be that investors should pre-determine logical rules by which they will operate in the market, and then dispassionately stick to those rules. In general, rules in society exist to control and modify the social behaviour. In the same way, an investor’s own rules can logically influence his or her own investment behaviour, and remove the “emotional” element from trading. For instance, a structure and pattern of the way a trader selects stocks should be guided by rules. Often it is the trader’s ability to stick to these rules that proves the difference between success and failure in the market place.
There will always be room in the market for beginners to learn about the principles of successful investing and to conduct meaningful stock market prediction. Whether an investor is experienced or not, it is still very important for him/her to look for the best advice available.e. retain the services of a reputable stock broker). There is no reason why those prepared to learn, to conduct research, and to operate in the market in a rule-based and disciplined manner, should not make profits from stock trading.
Visit my blog at http://www.savvyfinancialtraders.com for more information about investing in the stock market and grab some free ebooks and e-courses along the way.
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