How to Understanding Stock Market for Dummies

Stocks Basics

By Adam Hayes, CFA

Never depend on a single source of income....

Warren Buffet

Stocks are claims to a company’s profit stream and are granted voting rights in installing its board of directors or in approving large corporate actions such as being acquired. Shareholders are not owners of a corporation’s assets and do not involve themselves with corporate management.

Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim in recovery from a bankruptcy than shareholders. This is generally why stocks are considered riskier investments and require a higher expected rate of return.You can lose all of your investment with stocks. The flip-side of this is you can make a lot of money if you invest in the right company.The two main types of stock are common and preferred. It is also possible for a company to create different classes of stock.

Stock markets are places where buyers and sellers of stock meet to trade. Most trading takes place today via electronic trading.
Stock market indexes give an overview to how the stock market is “doing.”Stock prices change moment to moment according to supply and demand. There are many factors influencing prices, the most important of which is expectations about earnings. Still, there is no consensus as to why stock prices move the way they do.

To buy stocks you can either use a brokerage or a dividend reinvestment plan (DRIP).There are a number of different order types, and the type of order you use will depend on whether you are more concerned with price or with completing your order.

Stock tables/quotes actually aren't that hard to read once you know what everything stands for!Bulls are optimistic and bull markets are defined by increasing stock prices. Bears are pessimists and bear markets occur when prices fall.