Stock market investing for beginners the ultimate guide on how to invest in stock (investment book)

Table Of ContentsIntroduction Chapter 1 Stock as a Wealth Tool Chapter 2 Basics of Stocks Chapter 3 Why Stocks Exist Chapter 4 Types of Stocks Chapter 5 Other Types of Exchange Conclusio

Stock Market Investing for Beginners

The Ultimate Guide on How to Invest in Stock

Table Of Contents

Introduction

Chapter 1 Stock as a Wealth Tool

Chapter 2 Basics of Stocks

Chapter 3 Why Stocks Exist

Chapter 4 Types of Stocks

Chapter 5 Other Types of Exchange

Conclusion

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I want to thank you and congratulate you for downloading the book, “Stock Market Investing for Beginners”

This book contains proven steps and strategies on how to make your way through the intricate world

of the stock market as a beginner

This book will open your eyes to the things you need to know before venturing into the stock market and start trading

This book will delve into the terms and strategies that every beginner needs to know

You will get to know how the stocks have come to what it is now, and why they still exist up to this very day You will also learn the different types of stocks used in the market and how they are being utilized in the industry

Aside from that, you will also be able to point out the other types of exchanges

Let’s begin

Chapter 1: Stock as a Wealth Tool

Have you ever wanted to be your own boss? Imagine if you could build a reliable source of income from the comfort of your own home, and spend your time watching your money grow! It might sound like an impossible goal, but it’s a reality for many people who successfully trade on the stock market Stocks are one of the greatest tools ever created for building wealth If you plan on investing and growing your money, knowing how to successfully trade on the stock market is mandatory Stocks make up the majority of almost every investment portfolio, and can be a great way to store and grow your capital

Years ago, only the rich were able to trade on the stock market, and they used it to amass fortunes Nowadays, thanks to advances in technology and education, the stock market is available to almost everyone There’s never been a better time to start trading

Regardless of how popular stocks have become, most people still don’t understand how stocks work

On top of the lack of information, there’s also a lot of bad information and advice, given by people who don’t know what they’re talking about A lot of this information is based on the “get rich quick” mentality, where others will urge you to invest everything into a certain company, or make constant risky decisions The stock market is not a casino, and you shouldn’t be risking any large amounts of money If you play the stock market carefully and consciously, it’s very possible to make a constant return that will grow your wealth to new heights The best way to protect your money in the stock market is to understand where you are putting your money

That’s why I’ve created this guide, to give you the knowledge you need to make smart investment decisions I’ll begin by explaining the basics of stocks and the different types of stocks, and then will cover how they’re traded, and what causes prices to fluctuate

Chapter 2: Basics of Stocks

What is a Stock?

In layman terms, a stock is representative of a single share in the ownership of a company A stock is

a claim on a company’s earnings and assets The more stock you own, the more of the company you own For example if you buy 51% of a company’s stock, than you own the majority of the company itself, and are entitled to most of its profits and assets

Stock Owner Rights

By owning stock, you become one of the many shareholders who direct the company This means that you are entitled to any voting rights associated with the stock, and your influence in the company

increases with every stock you buy You won’t be able to influence the day to day actions of a

company; however you can influence its direction by voting to elect people to the board of directors

at annual meetings

The management of a company is supposed to increase profit for shareholders That is their main responsibility, and those who don’t are often voted out However, for most major companies, there are such a large amount of shares that the average person won’t have much influence For any fortune

500 company, the only entities that could make an impact are billionaire investors and large funds However if the majority of voters are of the same mind, they can make a massive impact even if it goes against the wishes of the other larger shareholders, as long as their combined % of ownership is larger than the other voters

Prior to the popularity of online brokers, a stock would be represented by a stock certificate This was a piece of paper that provided proof that you owned the stock Nowadays this type of information

is stored electronically by your online broker This is good, because it makes the shares easier to trade With a click of a mouse or a simple phone call, now you can trade instantly to take advantage

of any potential opportunities

However, most shareholders don’t concern themselves with trying to manage or influence the

company The great thing about stocks is that you can profit off them passively, with very little work The main benefit to a stock is the share of the profit that you’re entitled to Profits are paid out in dividends, which is the amount of profit distributed per stock The more stock, the more profits As for your ownership of assets, this only comes into play if the company becomes bankrupt In the case

of a bankruptcy, all the company’s assets will be liquidated First the creditors (people who the

company owes money to) will be paid, and what’s left will be distributed among the shareholders

At this point you’re probably wondering “If a stock means I own part of a company, does that mean I’m liable to pay their debts as well?” The answer is no, thanks to an excellent feature of stocks

called limited liability As opposed to a partnership, where if the partnership goes bankrupt creditors can go after the partner’s assets personally, stockholders are completely shielded from any liability When you buy a stock, the maximum amount of money you can lose is your initial investment If you

buy 1 stock at $90, you will never lose more than $90 This creates an excellent situation where you are entitled to all the profits of a business, and none of the debts Although any debt the company has will lower the prices of the stock and cost you money indirectly, you can always sell the stock and move on

Chapter 3: Why Stocks Exist

Why do Stocks Exist?

At some point, everyone asks the questions, “Why do stocks even exist?” If a company is profitable, why would they want to share their profits with hundreds or thousands of people? The answer is to raise money At some point, every company wants to raise money to finance their future endeavours They can do this either by borrowing money or selling parts of the company in the form of stocks Borrowing money, or issuing bonds with a guarantee to pay back, is known as debt financing Selling stock is known as equity financing

Oftentimes, selling stock is the best idea financially since it doesn’t require the company to be

burdened by debt repayments, or to make interest payments The first sale of a stock is called the initial public offering, or IPO All that shareholders get in exchange for their money is the hope that the stock will go up, and the company will be profitable enough to pay out dividends

There is a big difference between a company financing through debt, and financing through the selling

of shares If you purchase debt in the form of a bond, you’re guaranteed the return of your initial

payment, as well as interest payments This isn’t the case with a stock By purchasing stock and

becoming a shareholder, you will be taking on the risk that the company will fail, and you might

potentially lose your initial investment Also if the company becomes bankrupt, you will be paid only after the creditors have been paid So if someone has bought a bond from the company, they will be paid first before any shareholders are paid If a company is successful there’s opportunity for long term profits and growth, however if it fails then you stand to lose whatever capital you invested into that company

How Much are You Willing to Risk?

It’s important to remember that when it comes to individual stocks, there are no guarantees of

profitability While you might make predictable income on a large spread of stocks if you invest intelligently, you should never bet a large amount of your capital on a single stock Even if you have good reasons to believe that a certain company will be increasing in value soon, there’s no such thing

as a “sure thing” and multiple foolish investors have lost fortunes betting on a single company It’s important to diversify your stocks You should also keep in mind that while most companies pay out dividends, some of them won’t, or will only pay them irregularly In that situation, it’s important to only invest if you have reason to believe the stock will go up If a company pays dividends regularly, than even if you think the stock will stay at the same price, it can still be a good idea to buy for the dividends and sell later at the same price

Although risk should in general be minimized, that’s not to say that all risk is bad Every trade you make involves some level of risk, and in general the higher the degree of risk the larger the profit

there is to be made Stocks have historically produced a return of 10-13% per year, ever year This beats the rate of inflation significantly, and is a great indicator of the profitability of stocks

Now, let’s talk about the two types of stock There’s common stock, and preferred stock Both are important, however they both have significant differences

Chapter 4: Types of Stocks

Common Stock

Common stock is, as the name suggests, the most common type of stock When people refer to stock, this is what they mean most of the time This type of stock represents ownership of a specific

percentage of a company, and an entitlement to your share of the company’s profit Owners of this type of stock get one vote per share when it comes time to elect members of the board, who make major decisions concerning the company

Stocks provide a greater return on your initial investment than almost any other type of investment on average However stocks are also one of the more risky investment instruments, since you run the chance of losing your initial capital if you don’t invest wisely

Preferred Stock

Preferred stock is similar to common stock, with certain key differences The two main differences are that with preferred stock, you don’t have the same voting rights in a company, if at all Secondly, the dividends paid to you are a fixed amount With common stock your dividends are a percentage of profit per share, and so the amount of dividend paid varies depending on how well the company does financially With preferred stock, you receive the same amount of money every quarter regardless of how the company does This can be a good thing or a bad thing depending on whether or not the

company in question starts underperforming or not People with preferred stock are also paid before people with common stock in the event of bankruptcy or liquidation; however they are still paid after the creditors Preferred stock is considered a mixture of debt and equity, and it’s helpful to view them

as somewhere in between bonds and normal shares

Different Strands of Stock

Although common and preferred stock are the two main types, there are also ways for companies to customize specific types of stock in virtually any way they want One of the most common reasons for doing this is so that voting rights remain within a certain group, and to accomplish this companies issue different classes of shares with different voting rights As an example, a company might issue a certain type of share that gives 10 votes per share to a select few, and another that only gives 1 vote per share to the majority

When a company issues multiple types of stock, they are designated as Class A, Class B, and so on The different types are shown by placing the letter behind the normal ticket symbol, for example

instead of BAC it would be shown as BAC.A, and BAC.B

The majority of stocks are bought and sold on exchanges, which is a place where sellers and buyers meet and decide on a price Exchanges can be physical locations where deals are made on the trading floor, for example the New York Stock Exchange This is the one you see in movies often, with

traders yelling loudly and running to make deals Exchanges can also be virtual, made up of multiple computer networks where trades are finalized electronically from the comfort of your own home Exchanges are necessary to facilitate the exchange of shares between buyers and sellers Imagine if you had to search around to find someone with the type of stock you want!

Prior to continuing, it’s important to clarify the difference between a primary market and a secondary market The primary market is where the securities are initially traded, in the form of an IPO (as

mentioned earlier), whereas in the secondary market investors trade securities that were already sold without any involvement of the original company

The New York Stock Exchange

The largest and most influential primary exchange in the entire world is The New York Stock

Exchange This stock exchange is over 200 years old, created only a few decades after the founding

of The United States The largest companies in the US list themselves on the NYSE

The NYSE was the first exchange of its kind, where the majority of the trades were conducted face to face on a trading floor Orders are received from brokerage firms that are members of the exchange, and those orders make their way down to the trading floor where the desired stock is traded At each

of these locations there’s a person called the specialist, whose responsibility it is to match traders with sellers and vice versa An “auction method” is used to determine prices, where the price at any given time is highest amount a buyer will pay for the stock, and the lowest amount price that someone will sell it at After the trade is completed, the information is sent to the brokerage firm, who passes

on the news to the investor who requested the trade initially

The NASDAQ

The second type of exchange is the NASDAQ You’ve probably heard this referred to on the news, and it is a very important exchange This exchange is completely virtual, with no central location or floor for traders to physically trade on All trading is done through computers and the networks of dealers Years ago, the largest companies were traded through the NYSE while less valuable

companies were sold through the NASDAQ However since the tech boom in the late 90’s, the

NASDAQ now is the place to go to buy dozens of massive companies, such as Intel, Dell, Microsoft and others This increase in importance has made the NASDAQ a competing force, and a place where all the biggest investors come to trade