If you haven’t Invested in Stocks before, Here is what you need to know
Investing in the stock market can see, scary and confusing. There are so many choices…where do you begin? Well, it’s really not that different from learning how to swim.
Jumping into a big pool, river or ocean can seem scary. But if you simply dive in and begin to learn, you’ll be on your own in no time.
As the world’s greatest investor Warren Buffett explains, it’s not rocket science…
As you can see, Mr. Buffett doesn’t make a big deal out of things that aren’t. He doesn’t have access to special and secret information. He has access to the same information as you do. He simply approaches it in a calm analytic manner.
But just so we’re clear, if Mr. Buffett were here and we asked him to explain how to invest in stocks he would tell you some version of the following:
Buying a stock is buying a piece of a publically trading company. Yes, the minute you buy one single share of a given stock you are an owner of that company. Naturally, as you acquire more shares, you acquire a larger share of equity. In plain English, this just means that you own more of the company in question.
Each stock you buy entitles you to that proportional part of that company’s earnings and assets.
There are two types of stock, common stock and preferred stock.
Common stock ownership allows you shareholders voting rights but no guarantee of a dividend payment. A dividend is a small percentage of the stock price which is paid back to the stockholder on a pre-determined basis.
It’s basically the company’s way of saying, “Thank you for investing in our company. Here’s a little something to show you we appreciate your business and care about you making money while we are.”
Preferred stock ownership does not give you any voting rights, but (in most cases) guarantees you a dividend payment.
Once upon a time, stockholders would receive a paper stock certificate which had the number of shares they owned written on it. This is called a security, it’s just another word people use in place of “stock” or “share” so don’t get confused. The differences are not big enough to worry about.
Today, stock or share ownership is recorded electronically and the record is held with your brokerage firm. Of course, the law ensures that you’re allowed to log into your account and check your ownership status. It’s no different than an electronic account at your bank and is typically as simple as checking email.
Now, be careful! Investing in stocks is not as simple as buy, sell, get rich!
Reality doesn’t work like that. Anybody telling you otherwise has some nice oceanfront land to sell you…in Nebraska.
You must treat investing in stocks like you would your job. Be serious, learn as much as you can and follow what the winners do.
Before you go out and buy a stock for the first time, you have to master the basics. This won’t make you Warren Buffett, but it will help you feel comfortable and more likely to succeed.
With that said, let’s go through the basics of getting started.