NASDAQ, Dow Jones, initial public offering, short sale, price to earnings ratio, market capitalization and stock shares. For most, these terms may seem like a foreign language.
Knowledge of the stock market has traditionally been left to those of older generations. However, now more than ever, is a great time to learn the stock market.
Business major Wil Byers, who interned for a finance company called Efficient Market Advisors over the summer, said that if money was so important, “then why don’t they teach this in schools?”
Byers is trying to set up his own investment fund for students to help friends get started in the stock market.
He said the stock market leads the economy by six to nine months, and the news never shows when the market is going up. So it is important to follow the stock market because a person can know firsthand how the economy will be.
Another reason for investing is a hidden secret. When opening a savings account with a bank, a person receives a certain percentage of interest a year. Those trying to save do not know that the bank is actually using their money to invest and keeping the majority of the profit. So, a person can do this independently.
First things first, what is a stock? A stock share is a very small piece of the financial side of a company that is available to be publicly traded. After purchasing stock, one becomes a shareholder and theoretically owns part of that company. The part is dependent on how many shares were bought.
The price of a share is decided by a stock exchange, which is basically a place where stock brokers make deals and decide on the price of a stock. And this is also determined by supply and demand. Supply and demand refers to the contrast between what the company has to offer and the demand for what is being offered. Obviously, if the supply is low and demand is high, stocks are going to be worth more, and vice versa.
A company enters the stock market to sell shares, which enables them to have more finances to expand. In order to do so they must first send out an initial public offering that shows the public their assets.
After the IPO is done, private buyers can purchase stock as well as trade and sell it. Every company is required by law to reveal their financial reports to prospective shareholders.
All company financial reports can be found on the U.S. Securities and Exchange Commission’s website www.sec.gov, or through a company’s website.
Econoday.com can be used to follow the stock market. This website gives daily reports of what is happening in the economy and indicates what may affect the stock market. And Yahoo Finance provides charts of market activity and lets a viewer track it through the years. It also updates in real time.
When ready to start investing, research the company’s financial reports. Look for a company that shows a stable reputation and can handle the fluctuations in the stock market. Also look at competing companies. Be smart about making investments with money earned. Do not put it at risk because a brother’s girlfriend’s friend made a fortune through lucky investments.
Another way that people can lose money is as Byers said “if you’re emotional when investing, you’ll fail every time.”
Byers describes that if one invests in a company solely because of personal interests, or stocks are sold based on fear of a small drop, things turn out badly.
Setting limits is another way to avoid a significant loss because the stock market can never guarantee against a crash. Once a certain share has reached the peak, sell it. And on the negative side, if it has reached the all-time-low of what a person set for himself, sell it as well.
There are brokerage firms that enable a student to get advice from a stock broker on investments. Or, if done online, there are brokerages such as E*Trade, Ameritrade, and Scottrade.
Assistant Professor Stephen Christie of California Baptist University’s School of Business said it is important for students to know the stock market because most large companies are publicly traded as well as the fact that historically speaking it has shown positive outcomes for investors. Finally, specifically for business students, it gives them insight into, “corporate America.”
Christie advises students to decide why they want to invest before actually committing. He said students should realize that they are not experts and that it is very risky to try. Also, taking the “buy and hold” approach will probably be a better way to save rather than trying to buy shares and sell them within a day; day trading.
Whether you are in college or retired, there are many benefits to knowing the stock market.