Stock Market For Beginners | Stock Market For Dummies

In order to become proficient at stock investing and make money from it, you must first develop a good general understanding of the stock market. This means you should familiarize yourself with stock market lingo, be familiar with basic accounting and economic concepts and understand what's discussed in terms of financial news topics and opinions. Here are some of the things you should know and read up on: Basic Accounting Concepts You must develop an understanding of financial statements such as a Balance Sheet, an Income Statement and a Cash Flow Statement. You must understand the difference between assets and liabilities, debits and credits. Also you should know some basic accounting ratios like the Price to Earnings ratio which will tell you whether you paying too much or too little in comparison to the company's earnings. Other ratios to read up on include liquidity ratios (how fast can a company convert assets to liquid cash), and return on equity (which shows how efficient the company is in its operations by dividing net income by total equity). A general understanding of the stock market combined with these accounting concepts will help you understand the financial health of companies that you are considering investing in and also give you a solid background to understanding stock tables. Economic Climate Are we in a recession or a depression? Or are we in a high growth economy? Are we in a stable economic climate or have we peaked or troughed? Not only must you look at your own nation's economy but the economies of the world in general and the economics of your trade partners, because all these factors will affect the way the stock market behaves. In order to develop a general understanding of the stock market, it's important for you to be able to see a bull market (high growth) or a bear market (recessionary times) almost before it happens. That means immersing yourself in trends analysis and keeping a pulse on the economic climate. You don't necessarily have to listen to every "guru" on TV or take hot stock tips at face value, but you should be well-informed enough to trust your own gut instincts. How the Stock Market Works You should read up on how the stock market determines stock prices and why they fluctuate so much. Basically it's the economic rule of demand and supply. When demand for a stock increases, its price is likely to rise since more people will see it as a good investment and want to buy it. This will drive prices up. Conversely, if a company is performing badly, few investors will want to buy their stock, thus driving down demand, which will cause prices to dip. There are a lot of factors that can cause high or low demand, including but not limited to the economic climate, the technological trends, emerging markets, public relations, product or service innovation, management outlook, and more. So when you analyze the fluctuations in the market, be sure to take into account all the reasons for those fluctuations and make smart investment decisions. A solid general understanding of the stock market is obviously the start of a wealthy relationship with the stock market. Make sure you do it right by investing the right amounts of time and effort into your investment plan.