Understanding The Stock Market For Beginners

Understanding the stock market for beginners usually leads through the history of the most important global stock market exchange: the New York Stock Exchange. The New York Stock Exchange was originally founded around the month of May 1792. The sole purpose of the exchange was to allow individual investors to purchase paper shares of stock that proclaimed an individual holding in the company. To date, the fundamental principles of the market hold true, although in a slightly different manner. Today, with the power of the internet, one does not simply trade a share of stock; they trade what is known as the perception of a stock holding. Here is where the stock market for beginners starts, and ultimately ends.

In order to purchase an individual share of stock in a company, one simply needs to contact a stockbroker (or more likely, a discount online broker such as Tradeking or Zecco) and ask to place a certain amount of funds on a given company at a given price. It certainly sounds simple enough, but there are so many fundamentals behind the transaction that it will confuse the novice investor to simply give up on any future transactions. Terms such as Price to Earnings ratio, Earnings per Share, Stock Dividend Buybacks, and the most frustrating of all, institutional sell/carry buy back options are enough to drive a person crazy. How in the world does one intend on making a profit while having to decipher through such complicated terms? The answer is simple, keeping it as simple as possible.

Warren Buffet is perhaps the greatest stock market investor of all time. His company, Berkshire Hathaway, has generated 20+% returns on book value on a continual basis for the past forty years. His philosophy, which includes teachings to the most novice of investors, is to keep it simple. There is no need to try and absorb the information behind the history of the markets in terms of why they were created, but only understand how the markets will work for the investor today. If the investor simply understands the concept behind the paper transaction, and not that the so-called monetary transaction, they will be well on their way to profitable gains. This includes the most novice of investors.

Understanding the stock market for beginners is truly a novel concept. Although a history lesson is necessary, it is certainly not required. The stock market for beginners can be summed up in a few short words by the greatest investor of all time, Warren Buffet. “Please keep your investments as simple as possible, otherwise you will fail”.