Gaining a Better Understanding of the Stock Market

New investors will likely see the stock market as a way to gamble legally.  They feel that they just choose a stock at random and invest with it.  If the stock prices rise, then they win.  If it goes down, then they lose.  Is this really how it works?  Well, not really.  Let’s take a closer look at how it actually works.

The stock market is really not a short term way to invest your money that will either result in a huge return on your investment, or a huge loss.  If you think of it like this, it is much like a game of roulette.  As you learn more about how the stock market works, you will begin to understand what it is really about.  This will also help you to be better prepared to handle and manage your money and your stocks with care.

Many people will view the stock market as something that intimidates them.  It is a good idea to learn as much information as you can about it.  Here are a few of the basics that will get you started.  Shares are basically a share of ownership in a particular company.  If you buy a share, then you are basically entitled to a portion of the assets of the company.  Assets can include the physical assets and the earnings of the company.

Why would companies want to share part of their assets with people that are not affiliated with their company?  The answer is simple- they need money to help them.  Companies have to rely on two different ways to make money to start up and grow their business.  They can finance it by putting themselves into debt, or they can sell the stocks to the public to make money.

There are disadvantages when it comes to taking out loans for business needs.  The company will usually have to pay back the money and also pay interest in the principle.  If they sell stocks, then they are able to get money without having to pay as much back.  They don’t have to pay interest on the funds.  They are also at a lower risk when it comes to selling stocks.  If the company is unsuccessful, then the founders won’t lose everything they have.