User:Cneeds/Investing in stock

Investing in stock

Some definitions

What is stock?

Stock represents the capital that has been put into a business to fund the venture, either at its inauguration or at other times during the course of the venture's growth or difficulties.

This representation is normally in the form of shares that have a value corresponding to the amount of capital injected. Generally an annual or other periodic amount is paid to the owner(s) of the shares in the form of dividends.

Share value

If the business thrives the value of its shares increases and they become more sought after.

If the business fails or fares badly the shares' value decreases and they could become worthless. Therefor buying a company's stock has an element of risk attached to it.

Stock market

Stock in private companies is not available for sale or purchase by the "man in the street" so a company has to "go public" in order for its shares to be traded by the general public. These companies must adhere to the Securities and Exchange Commission's guidelines even if their stock is not traded on any of the world's stock exchanges.

In order to become listed on one or more stock exchanges a public company must meet the requirements of the exchanges that it wants its shares listed on. The company's stock is now available for buying and selling in the stock market(s) that it has listed under.

Brief history

The stock of the Dutch East India Company is known to have been publicly traded as early as 1602 in the Amsterdam Stock Exchange.

Perhaps the world's most respected stock exchange, the London Stock Exchange (LSE) can trace its origins to dealings in London coffee houses as early as 1698, but the truly regulated forunner of the LSE we know today really only started operating in March 1801.

Investing

The premise behind paying for something that is not needed or required is that the artefact or commodity so purchased will increase in value over time and can then be resold at a later date for more than was initially paid for it.

There is an element of risk attached to all investments but some are obviously more susceptible to failure than others. Generally speaking investments that have a high return over the same or even a shorter period are more prone to failure than more stable investment types. Conversely the more risky the investment type the more knowledgable the would-be investor should be about the commodity and the market in which they are considering trading.

Types or styles of investing

Long term, fundamental analysis High yield potential with little regard for security Maximising dividends Speculating Momentum investing (Fair weather investing) (link)

Steps to take when investing in the stock market

1. Accumulate spare cash and assets (Sell the assets at the right time for the best price) ( save money )
2. Study stock market investing principles from the experts
3. Prepare a plan of action ( create a strategy )
4. Find a recognised stock broker and open a stock trading account ( open a stock account )
5. Use the broker's test system to try out the investing plan
6. When ready, transfer some of the accumulated cash into the trading account ( fund stock account )
7. Start trading ( select and purchase stock(s) or mutual fund(s) )
8. Continue to accumulate cash ( save more money )
9. Add to or expand the portfolio ( invest in more stocks and funds )
10. Investigate and learn about all the difficult issues ( keep educating yourself )
11. Start to balance the portflio in line with the principles learnt ( occasionally rebalance your portfolio )

Things to avoid when investing in stock

1. No exit strategy
2. Over committing on a single stock
3. Fear to cut losses
4. Being presumptious
5. Trading in a buoyant sector of the market
6. Trading emotionally instead of intellectually

See also

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External links

• Issues in international exchange and payments systems
• Fixing exchange rates: a virtual quest for fundamentals
• More about forex fixing