Stocks question?

I really want to invest in stock but I guess I just don't understand the idea of it yet. What is the point in buying stock? How do I know how much my stock is worth? I really don't actually have that money until I sell the stock right? I mean, I can't just take some money out as if it was an ATM, right? How do I know how much I will sell it for? any basic information you can give me would help a lot. I'm trying to learn but it's kinda hard to find information in words that I can understand

People make money from dividends and selling stocks based on inflation and emotions. You would want to buy stock when you have taken these things into account and are willing to risk your stock investment in return for a greater return on your money.

Most companies pay no regular dividends and those that do, pay very little like interest on a bank account. The reason you would rather own stock than a bank account, is you are expecting a greater return based on a greater risk of losing some or all of your investment in the stock market than with a bank account. Generally, those companies that pay regular dividends are earning the market's confidence that they continue to pile up so much cash they have to give it away. So, if you invest in them for 10 years and then sell, you can make profit both on the dividends and the gain in value when you sell. This is a sound way of making money in the stock market.

By inflation, I mean regular inflation of wages and prices of stuff you buy, that also raises the value of everything up the ladder, including businesses in the stock market. I also mean inflation that comes from a population that continues to grow and finds it easy and more tax advantaged to buy stock, such as through 401K's and IRA's. Also, look at the dates of the mutual funds on your 401K offering and see if you can find any that were around during WWII. This theory suggests you can expect some overall growth in the stock market over time. Some will go up, some will go down. Be sure to diversify by buying more than one mutual fund and make sure they are in different categories, so you will have some that go up to go along with those that will go down so overall your investment will grow over time. Notice I said "mutual fund." Obviously, you are a novice and therefore should buy mutual funds now, stocks once you feel comfortable with a broker or advisory newsletter, and avoid commodities and options because those are so risky with less ownership than stock and are therefore more gambling than investment.

Much more money is probably made or lost on emotions. One example is the stock market changing based on some economic data. That makes sense. Then people continue buying and selling because they are emotionally attached to the trend. Have you ever played a car race video game where you are racing along, faster than you should, and when you come upon a curve, you start to slide, you get worried about crashing so you counter steer, but you over corrected, so you steer back the over way, and discover you over corrected again? The stock market has thousands of people doing the same thing every day. They are going too fast, the market corrects, they worry about a crash, and they over correct. People are buying and selling based on the emotional sales pitch of a broker, 401K enrollment, relative, friend, email, or ad. Look at how many answers suggested specific companies to buy or brokers to use. One of them stated her affiliation to her recommendation. The others did not state their affiliation. They might be brokers or they might just be happy customers. I advise you to steer clear of specific recommendations. Do an internet search or a review of a 401K listing and pick out mutual funds that have good track records. Good track records do not bring guarantees of future success, but if the Yankees have been to the playoffs more than the Devil Rays in recent years, which team do you think has the better chance this year? Also, only look at 3-5 years so you don't get a fluke and you don't get a past perennial that has not done so good recently. Also, if a mutual fund did well over 10-20 years, the fund manager may have retired, been promoted, or lured to another company for higher pay. So stick to a 3-5 year measurement.

Stock is easily measured by the stock market and reported in the daily papers and the internet. It is not like a car, art, rare coins, antiques, and real estate. You always know what stocks are worth. Expect to lose a little when you sell stock, just like everything else. The person buying or selling wants an incentive and there are usually transaction costs too. So if you see XYZ stock is trading at $40, and you have $1000, you might want to buy 25 shares, but the person who owns it would offer it for sale at $40.25 and the broker wants $15 for handling the transaction, so you would only wind up with 24.47 shares now worth $40.25 apiece for a total of $985. If you think you want to sell them, somebody might offer you $40 apiece for them, and the broker will want another $15. So if you sell them, the broker will return to you $963.88. So you would have paid and got back close to what the stock was worth. You also would have lost only because you did not let it sit long enough for others to keep bidding up the price. It was only affected by your activity that raised and lowered the price.

You do not have that cash readily available like withdrawing it from an ATM. Since you would lose a little every time you buy or sell like I explained above, it should not be fluctuating with withdrawals. Your investing strategy should be an expectation of keeping that stock in there for at least a year. You could use your 401K where your employer pays all those transaction costs and the money is deducted before tax is calculated so you can afford to invest more than if it had been taxed. If the rate coming out of your check is too much, then you can adjust it or even stop it all together until you can add to it again. In the meantime, you should not withdraw from it, but can sometimes borrow against it, if you really need to and can afford to pay it back on a regular basis. Keep in mind that process usually charges you transaction costs.

You did not ask the hardest question of all: when to buy and when to sell. That is very hard to answer, but you need to know something about that too. Basically, you should buy based on meaningful statistics. You should not buy based on "proforma," "projections," or "forecasts." Those are not statistics but guesses and marketing ploys. Meaningful is hard to define. One statistic is not enough to be meaningful. Recent profits are the best measure, unless there is a pending investigation by the SEC, IRS, FDA, or other governmental entity. Comparing profit/earnings (PE) ratios to other companies in their industry is a great tool, but is not the best when the whole industry, say technology, is overpriced. The other top measure relates to cash, such as debt to equity ratio. The drawback to this is some companies, like tobacco, have great cash ratios, but may not be the sound investment for the future. So get more than one measure from the internet. Maybe stick to a rule like each of the above (net income, P/E, recent news, debt/equity) must compare favorably to competitor and to the market as a whole. To compare to the market as a whole, you might research the brand names of the stuff you buy, the stores you visit, and the restaurants you enjoy and use a few of them as benchmarks. You might even find that company that gets so much of your business is a good stock buy just ripe for the stock market to go wild about.

The last thing, is you should sell the stock or mutual fund when you no longer would want to buy it (if you had the money to invest). For instance you would sell if the measure you used for buying the mutual fund is now below average, or the great P/E ratio is too high, or a "---" (meaning they lost money and there is no profit).

I suggest you visit www.vanguard.com for some basic information. I also suggest you hold off buying an individual stock until you get to know the market, and your reactions to what happens in the market, a lot better. But for a quick response:

When you buy a share of stock you become a part owner of the company and share in the good and bad based on how other stock-holders view the company.

Buying the stock at the market means some other shareholder is willing to sell you their shares. The value of the stock is based on the value others in the market place on it. If they like the stock they will bid the price up. If they think the company's prospects are poor, the price of the stock will fall to the point where someone thinks it is a good value (because it is now cheap). Unfortunately, the stock can also lose all of its value if the company goes under.

So you make money (1) when other people want to buy the same stock and bid up the price; and, (2) if the company pays a dividend, which is a cash reward to shareholders paid from the company's earnings.

I've found it's tough to learn the basics about the market without also getting a sales pitch. At least at a no-load fund family like Vanguard, the sales pitch is a bit subdued. Good luck.

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Read everything you can about investing. There are a lot of investing strategies out that, some complicated, and some are not. My advice, model your trading activites after what the historically successful investors have done. Read about Warren Buffett, Benjamin Graham. The Intelligent Investor is pretty much known as the greatest book for investing. It's based on value where you buy a stock when it's cheap and hold on to it.

Here is the proper way to think about stocks (or any securities in general): Replace the name of the security in question, whether it be stocks, bonds, options, futures, and insert the name of a common produce of your choice.

Sounds silly? Not at all!

How much a stock is worth is determined by the same set of forces that determines the price of a basket of tomatoes at the local farmers market. How much anything is worth depends on what you can sell it for. How much you can sell anything for depends on the forces of supply and demand.

Q: What is the point in buying stock?
A: To provide capital (or means of funding) for elements of production (such as factories) in the economy and earn a return the result (you hope to sell it at a higher price later).

Q: How do I know how much my stock is worth?
A: The value of any item depends on the price it can be sold for â€“ your stock is worth its current price.

Q: I really don't actually have that money until I sell the stock right?
A: Right â€“ unless the stock pays a dividend, in which case you get cash while still owning the stock.

Q: I mean, I can't just take some money out as if it was an ATM, right?
A: You can sell or buy most stocks during the hours that the markets are open if you need to convert your stock holding to cash

Q: How do I know how much I will sell it for?
A: You donâ€™t. The price performances of financial securities are random.

I can tell you about valuation models and fundamental or technical analysis, but you will not understand them without spending a third of you life in school. Besides, they donâ€™t really work.

Here is the basic stuff that will be indispensable, and is often neglected:

1) The stock market is like any other market, except that instead of buying physical goods, the â€œgoodsâ€ transacted in capital markets are claims on assets and future profits.
2) Risk and return is the same thing; as such, they can and should be interchanged in sentences to remind us of that fact. If anyone offers you a high return, itâ€™s the same as offering you a high risk.
3) Returns are random. Anyone telling you otherwise is either God or lying.

How to invest your money, thatâ€™s a different question. I invite you to look at some of the other questions I answered on line; they may be of additional help.

You can make money in three basic ways with stock.

1) Buy low, sell high. Capitol gains. This is the most common method.

2) Dividends. Some company return profits to owners via the dividend process.

3) Owning enough of the stock to squeeze the company to give you things, like the CEO position.

In all cases, you need to know exactly what you're doing before you attempt to do it. Don't stop here! Go read everything you can about stocks before you spend any money. Use Yahoo's finance area, it is excellent.

You should understand the main reason why you want to spend money buying a particular stock. This step should preclude investing in stock. It allows you to move swiftly as soon as the price of the stock goes down a lot. If you know the main motivation about purchasing a specific stock, you will not hesitate to buy it once the price falls. Stocks purchased on the spur of the moment can be sold as soon as the price goes down. But if you are buying it as undervalued stocks, you can buy more stocks. Hiring a stockbroker can benefit beginners to the stock investment as they give all the necessary information about the stock to make the buying decision easy.
http://debt-trap.com/category/Stock-Investment-Ideas.html

You need to go talk to someone at a bank. I recommend JPMorgan Chase. I am a licensed personal banker there and I answer questions like that all of the time. Stocks are not a get rich quick product. How long you hold your stocks is what will make you money. Go to Chase and ask to talk to a PB there is no charge and they can clear things up for you

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