Stock market investing is an exciting capital producing venture for any new entrepreneur as well as any other person interested in the risks and rewards of high-stakes investing. Be warned however that such ventures aren’t for everyone and stock market investing has its own set of financial hazards one should be aware of.
And further more given that risk should one invest in them?
But before we get any deeper into the minutiae of the topic let’s start with the basics: what are stocks and what is the stock market? Stocks, simply put, is the share of the ownership of any business; shares (also called equity) being defined as a unit or percentage of ownership of a corporation or other financial asset. Purchase of a stock entitles the purchaser to profits, though not direct control, of the company they purchase stock in.
The stock market (or equity market) is a place where people exchanged stocks, but generally refers to the worldwide trade network of privately owned stocks as well as government bonds.
Now why do people trade stocks? Companies will often sell stock in order to relieve the financial burden of starting or maintaining a business.
When businesses sell stock in their company the incentive for investors to buy is the potential to receive a percentage of profit equal to the percentage of stock they purchased. This profit may be returned to investors in the form of dividends, or portions of a businesses acquired capital, or more often these dividends may be reinvested by the business to increase in value.
For example let’s say I buy twenty-five thousand dollars or one quarter of a company which needs one hundred thousand dollars to start up. My stock will, if the business is successful and is worth say two hundred thousand dollars in six months time, increase in value to fifty thousand dollars. These stocks can then be redeemed for cash called capital gain.
Keep in mind capital gain is the desired outcome of stock investment and is defined in this context as an increase in value of an asset. Most stocks earnings however aren’t as dramatic as this and often incur risk; risk being defined as the loss of a financial investment.
Now where are stocks commonly traded? Given the advent of the internet stocks are traded almost everywhere but stock exchanges are concentrated in a few places, both real and virtual, like New York City. Another place stocks are commonly sold would be through the decentralized NASDAQ. Through NASDAQ dealers will offer a bid or proposed price for a stock while a buyer may counter with or negotiate to an ask price for a stock.
Bear in mind these are only the bare bones basics of investing in stock. There’s a great deal more to be covered which we have resources available, but this introductory primer here should give you a basic idea of what stock is and how stock markets work.
Should You Invest?
Now onto the million dollar question: should one invest in stocks? Is it a means to accumulate immense wealth or is it a complete crap shoot? Yes. Yes, in the sense that stocks can be extremely profitable to those who know what they’re doing, and do it well. Yes also, in the sense that it can also be a complete waste of time and money even if you know what you are doing, but don’t invest properly and run into ill fortune.
In other words there is no right, same answer for every individual. Stock investment is for those who have a curious combination of a love for numbers and analysis, but also are quick witted and fearless. So should you invest in stocks? It’s an answer only you can give.
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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. I do have 16 years of experience in trading and investing in these markets. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user’s personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. The above statements should not be construed as an investment or trading recommendation. Aileron Market Balance is a newsletter that allows subscribers to look ‘over my shoulder’ as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this newsletter; as larger accounts may require a different strategy as the ones presented here. Any trades or investments that I discuss within this newsletter are simply my own thoughts regarding my own investing and trading outlook. I discuss which trades I take and do not take on the No Nonsense Trading Forums, as well as the Ventrilo Voice Server. Remember that entering any market is an individual decision. This newsletter simply contains my trading and investing thoughts for the next week. I personally only enter any market after watching and reading the tape and I trade using money management principles1. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 17 years of experience in trading and investing in these markets. The Model Portfolio accounts are hypothetical accounts,with all of the inherent problems therein, which are used within this newsletter in an attempt to track the results of this newsletter, and is run for the education of other traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this newsletter are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia’s public domain policy.