During the holiday season, stories of the Dow Jones, a collection of 30 large companies that are based in the US, plunging were rampant in the news. And it’s not only during the holidays that reports of the stock market are on the news; they are present almost every day. So what really are stocks and the stock market, and how do you begin investing in it?
Stocks are simply shares, or parts, of a company. Take Amazon as an example, and divide the company into 1,000 pieces – stocks that can be sold to get money to grow the company. Stocks also reflect the overall status of the company; if the company does well with a new business model, the value of the stock will also increase, and vice versa. Stocks can be bought or sold as well. If a company is selling stock at $100, and you expect the company to do well in the next year, you can buy the stock. A year later, if the value of the stock has risen to $120, you could sell the stock to make a $20 profit. The existence of stocks leads to the stock market, the virtual market where stocks can be bought or sold.
To clarify, according to Investopedia, when you buy a stock from the Dow, in reality, you are buying a stock from each of the companies listed in the Dow. Stocks from these huge companies are called blue chip stocks, and examples of blue chip companies are Intel, Coca-Cola, and Disney. Blue chip companies also usually give dividends, which is essentially money given to the stockholder to incentivize them to buy more of their stock.
So how do you begin investing in the stock market? Some people enlist the help of a stock advisor to manage their stocks for them so that they don’t have to do so themselves. In addition, they don’t pay trading fees when they want to buy or sell stocks.
However, it may be expensive to hire a stock advisor, and you may never get enough returns to break even with the amount you are paying the advisor. Nowadays, apps like Robinhood make it easy to trade from your phone on a small scale and even get rid of trading fees for you. For trading on a bigger scale, E*TRADE and Fidelity are some of the best trading platforms to get started. And, according to Yahoo Finance, to make educated decisions on when to buy stocks, you will need to research about the company you are going to invest in.
Ideally, you want to buy the stock at the lowest price possible and sell for the highest price possible. The Balance says im order to do that, you will need to look at the Form 10-K, balance sheet, income statement, cash flow statement, Proxy Statement, and annual report. These documents offer information on the history of the stock itself. Stock highs and lows are reported, as well as if the company gives dividends, is in debt, what happens to your stocks if the company goes bankrupt, and other information to help you make a decision on whether or not to buy that stock.
Generally, most people invest in blue chip companies because they are the most stable companies with the biggest projected returns. However, these returns will not be over the next year, or even the next five years. You will most likely have to wait decades to see the returns that you are expecting. Warren Buffett, one of the most successful investors of today, touches upon this patience to The Motley Fool and says, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”.
In order to get more returns faster, people day trade, swing trade, and penny trade. Learning about types of trading like those, and more about stocks will take determination and research, but it might be worth it if you look at the people who got rich off of stocks.
Paul Kang, Grade 9
La Canada High School