Stock Market for Beginners

Lesson No. 1: What is a share?

Lesson for investing in the stock market for beginners, begins with what is a company stock, what is the stock market is and how it works. In order to expand, most companies opt for going public with its shares instead of taking a loan against its assets. In exchange for giving up a tiny fractionof their control, these companies get cash which they don't have to pay back.

Lesson No.2: Description of stock market for beginners

In reality the stock market provides a place where buyers meet sellers; buyers want to buy shares at a certain rate and sellers want to sell at a certain rate. The probability that a buyer or seller will get their required price is very unlikely. The prices of shares depend on demand and supply. Supply indicates number of shares available while demand is the number of investors who want to buy that share.

A stock exchange is where prices of buyers and sellers are matched to some extent. The primary exchanges are the NASDAQ, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Pacific Stock Exchange.

1. As they say never put all your eggs in 1 basket, always diversify your investments into different asset classes. For example, real estate (a house), cash (savings account or CD) and maybe even bonds.This ensures that if 1 asset class under performs, exposure in other assets will offset this negative in your portfolio.
2. Along with diversifying your investments, it is also recommended to invest in different stocks.
   
3.  Use cost averaging. By buying stocks on a periodic basis for example monthly or quarterly, you will always be buying at an average price. If you try to time the market, you may be buying at a high or low valuation.
4. When you buy stocks, try to hold them for more than one year so you get taxed at the long term capital gains rate, which is currently 18%.
5. Most of your portfolio should be in tax-sheltered investments like 401K, 403B and IRAs. By investing in tax deferred plans, you are able to invest money and not worry about the tax implications.
6. Stock market for beginners should not be for the short term, they should have a long term view in order to make it worthwhile. If you're willing to take a long term view, you can afford to think more about the best stocks to buy rather than the best time to buy stocks.

The stock market is all about risk and return, and because your money is at more risk in the stock market than if you park it in a savings or Certificate of Deposit (CD) (by the way, the money you invest in a CD is probably reinvested by the company offering the CD), the potential return is higher. It's true that the movement in the stock market can cause both large losses and large gains, but if your investment time horizon is long enough, these short-term fluctuations will result in relatively high returns. It is generally accepted, that the average long term return from investing in stocks is 10-12%. This is much higher than the average CD or savings rate of 4-6%.

Stock market for beginners should be aimed towards long term investments. If you want to get rich quick, the stock market is not the answer for you. The stock market for beginners is complicated. But it is something you can understand. If you are in anyway serious about learning the stock market, then you need be serious about doing the studying. Stock market books for beginners help a great deal to inform and educate you; as Warren Buffet had once rightly said that that every investor should be able to understand basic accountancy principles, an annual report and stock market history. Getting a wide ranging education in personal finance, corporate finance, taxation, economics and investment theories will help.