Stock Market Basics

By: Brian Hunter


Anyone contemplating entering the field of stock market investment should certainly be aware of the fact that there is the very real possibility of losing money in your dealings. Obviously, most enter this challenging arena with the intent to make profits and this, too, is quite possible. However, as with most things in life, ignorance can be dangerous so it is advisable to ensure that you have covered the groundwork necessary for success. The following tips are generally accepted practice and should form the basis for all your investing strategies.

Basic Economics

This really just boils down to common sense in that the stock market merely caters to the criteria of supply and demand. There are those wishing to sell stock and there are others who wish to buy. This buying and selling of stock forms the basis of all day to day trading and investors buy stock at a certain price and then hold it until the price (hopefully) rises when it is then sold for a profit. Prices of stock are in a continual state of movement which is directly related to the supply and demand prevalent at any one moment. Usually if there is high demand for a particular stock then the price will usually rise. Conversely, should there be more stocks for selling than there are buyers for that stock then the price may very well go down. Shrewd judgement is required to turn a profit and that comes with experience and time.

Company/ies Research

This is probably one of the most important fundamentals of all. After all, if you are going to invest in the stock of a company you will wish to do so with confidence. Check the company profile, how it has performed in the marketplace, what its products or services are like, and generally try to establish how well it has fared in business. Does it appear to be a stable, well-structured company that delivers on both its promises and profit targets.

Company Longevity

Trying to access the likelihood of a company being around in, say, ten years or so is rather a difficult thing to do. However, some long-term stable companies are usually those owned by governments, telecommunications and gasoline. Profits of these companies are good due to these products and services always being in high demand. Another fast growing sector of the market is in the field of IT with more springing up almost on a daily basis. Great care should be taken here and only those companies with a proven track record should be considered for investment. It can be all too easy to become excited if a company has seemed to perform exceptionally well but short term success does not mean stability for the future so caution and restraint should be the exercised in these instances.

Keep up to Date with the Latest News

The research of companies that are being considered for investment is an ongoing thing due to the fact that the market is always changing. You should continually monitor all the latest news via the newspapers, press releases and company publications so that you have the very latest up to date information on which to base your dealings. Global and national events can sometimes affect the industry in which the company operates and it is not unknown for companies to go bankrupt overnight as a result of some such happening.

Spread your Investments

The old saying of 'not keeping your eggs all in one basket' could certainly have been coined for the stock market. Do spread your investments between several companies (within your budget). If everything is invested in one company then you stand to lose everything if that company goes under. Also, with several profit streams your good performing stocks can compensate for those performing poorly thus giving a more stable return on your investment.

Use Brokers with Discretion

Many of those new to stock market trading are guided by recommendations from their broker and it is as well to treat these with caution. There are the odd few unscrupulous brokers around and it is your money that they are gambling with so make sure that you have done your own careful research before entertaining their suggestions.

Finally...

Do not be greedy. Sometimes you may be tempted to hold on to an investment longer than intended (especially if the price is rising fast) hoping for a much higher return than originally anticipated. In such circumstances as these greed can cloud your judgement causing you to abandon you preset strategy with disastrous results. The lesson here is to never deviate from your normal strategy no matter how inviting the reason may be. The stock market is very unforgiving with mistakes so do not let greed be a causative factor in this respect.

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Brian Hunter has been active on the internet since 2002 and now works from home. For up to date information and help on the stock market visit his site at www.stock-market-trading.co.uk

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