The Stock Market And How The Average Person Can Use It

First of all, let’s determine exactly what a stock is; a stock is a little piece of a company, often called a share. If you own a share of stock in Restaurant X, you own a tiny portion of Restaurant X, along with all the other shareholders, or stockholders, in that company. If you have bought your share(s) in a good company, Restaurant X will make a profit. If it does, the value of your stock increases because the restaurant is now worth more than it was before it made a profit. If something happens to cause Restaurant X to fumble a bit – let’s say the chef decides to leave the country with his fiancée – and the reputation of the restaurant falls as a result, and profits cease, you now own a tiny portion of a company that is not doing well. Therefore, the value of your stock decreases because the net worth of the company itself is declining.

That is really all there is to understanding the absolute basics of the stock market. The trick, of course, is to know how to choose the right companies to invest in and when to buy the shares and when to sell them. Ideally, of course, you will buy when a company is relatively new and the cost of each share is low as well. Then, when you have chosen wisely, this new company invents a miraculous product or explodes on the scene with a terrific service and makes a profit. Then, right before the company loses momentum, you sell and make a profit from your shares.

For example, you believe the recession will cause people to turn to religion, so you buy stock in a company that manufactures Bibles; you pay $10 per share and buy 10 shares, for a total investment of $100. Then, Bible Printers, Incorporated lands an overseas account and becomes the exclusive Bible supplier for South Africa. They are soon bringing in a huge profit, and since they are, more people want apiece of the pie. So, the cost of the stock goes up to $20 per share. You are ecstatic and decide to sell. You sell your 10 shares for $20 each, for a total income of $200. You have doubled your money. That’s how the stock market works on a good day.