Investing Stock Market ABC's
While most folks today trust mutual funds and their professional
managers with their investments, it's still important to
understand the basics of the stock market. Although investing in
individual stocks may not be right for everyone, a basic
understanding of the stock market is essential to understanding
the workings of our economy and business sector.
A stock is a portion of ownership in a company. Commonly
referred to as a share, it is a small percentage of the total
ownership pool for the corporation. Shareholders are stock
owners, or people who have an ownership interest in the
corporation. Today, shares are usually tracked electronically,
but in previous decades shareholders would actually receive a
certificate stating their ownership.
Why own stocks? First, you are sharing in the company's profits.
When a corporation shows a profit, they will sometimes
distribute these profits to each shareholder, based on how much
stock they own. This distribution is called a dividend.
Company's can elect to pay out their profits or reinvest them in
the company, but as a shareholder, each time a payout is made
you will receive your proportionate share.
Also, the value of your stock will rise and fall based on the
company's perceived value in the stock market. If you buy a
share at $10.00 and it rises to $11.00 a share, you've made a
dollar for each share you own, and subsequently sell. However,
with this opportunity comes risk as well. If the share price
falls and you sell, you'll lose money. The more volatile the
stock, the more opportunity for risk or profit.
Most shareholders track their stocks using the stock table.
These appear confusing and difficult to read, but they are
actually easy to understand with a little practice.
Ticker symbol is listed first. This is the abbreviated symbol
that the stock market uses to identify your company. For
example, GE is General Electric, WMT is Walmart. Once you select
a company, you'll need to know it's shorthand name to track its
progress.
Second, the company's name may be listed. Some tables omit the
name to save space, others list it to make tracking stocks
easier.
The third item is the number of sales in the last trading day.
This is listed in the 100,000's, so 256 means 256,000 shares
were bought and sold on the last day that the market was open.
Next are the high and low price, in that order. The high price
is the highest per share price that the stock sold for on the
previous trading day. The low price is the lowest price for that
day. Since the price of the shares moves all day long, this is a
good reference to see how much the stock is changing in a day.
Next, the closing price is listed. This is the last price that
the stock traded for as the market closed. This will also be the
beginning price for the next trading day.
After the closing price, the table will list the change, or the
amount that the stock changed when you compare yesterday's
closing price with the closing price for the day before. This
will be listed as a positive number (the stock went up) or a
negative number (the stock sold for less yesterday than the day
before).
Stock tables are found in many places, but most people check
their daily paper or the Wall Street Journal. There are many
internet sites that track stocks as well.
Of course, you'll have to select a stock. Choose carefully or
consult a professional, and good luck!