How to Invest in the Stock Market: Basic Concepts and Tips for Beginners

Prior to discussing the stock markets, let’s explain what stocks are:

What are Stocks?

Stocks are the shares that a company invites the public to purchase. This is done in order to get a sufficient amount of capital for running its business rather than going for bank loans. So when we buy stocks, we actually buy fractional ownership of the company we own the shares of. This ownership of the shareholder is extended to the percentage of their investment in the company.

How the stock markets work and its Goals:

Now that we know what stocks are, let’s see how the stock markets work. When the public is invited to purchase stocks, they’re regularly given dividends in return. Or the shareholders are free to sell those stocks once their value rises to drive enough profits out of their investment.

To simplify it further, there are basically two goals of stock marketing.

Capital Generation

This is from the company’s point of view. As discussed earlier, the company escapes a huge amount of debt that it could’ve incurred by generating the capital via borrowing a bank loan. So, if 10 million shares are sold at $10 each then the company would generate 100 million dollars of capital by selling shares.

Read more: Basics of Statistical Analysis: Types, Terms, Steps, Objectives and Merits

Income Generation

Now let’s take a look at the investor’s point of view. When the company begins to make profits then these profits are shared with the investors by way of dividends. So, we constantly get a certain amount of money without having to do anything.

Secondly, some of the investors don’t buy stocks for the purposes of earning dividends. They rather have bigger aims. They wait for the stock values to rise so that they sell the shares at a higher price. This allows them to make way more profits than the dividends.

The Stock Exchange

Where stock marketing is a whole mechanism of stock buying and selling, the venue (an organization or a firm) where the process of stock marketing is conducted is known as a stock exchange. Few of the oldest and the most popular stock exchanges along with their dates of the establishment are listed below:

1. London Stock Exchange (LSE)- established in 1773
2. Philadelphia Stock Exchange (PSE)- established in 1790
3. New York Stock Exchange (NYSE)- established in 1792

The Stock Market Indexes

These are the tools which show the performance of the stock markets along with the rise and fall in the stock prices.

When there’s a rise in the stock prices it’s referred to as a bull market and when the stock prices constantly fall we call this phenomenon a bear market. The former appeals most of the investors because there are unbeatable chances of profit making when the prices are on a constant rise. This shows the excellent performance of a company which ultimately results in attracting more investors to participate in the investment programs.

 Key Facts & Statistics:

• If you own a stock of a company, you own a part (no matter how small or large) of that company.
• If a company issues and sells 100 stocks and you buy 5 stocks, then you own 5% of that company.
• Sometimes your stocks might become worthless if the company keep on losing its profit and closes.
• China’s stock market is actually called 'The Stock Market'.
• Canada's stock market is virtual and electronic. There is nothing analog about Canada’s stock market.
• The first stock market of the world commenced in Belgium in 1460.
• The first stock market in the USA commenced in 1790 in Philadelphia.