Stocks for Dummies
- Last Updated: Friday, 24 April 2020
The sheer number of tasks everyone completes each day is astounding. With such busy and complex lives, it helps when a topic can be broken down and simplified. That’s what this article, stocks for dummies, tries to do.
Oftentimes, people have trouble getting started when it comes to new concepts. They think they want to start investing in stocks, but they do not know where to begin. We’ve put together a series on stock research that should help the novice investor get a good feel for how to go about picking stocks.
In Stock Research Part I we cover the basics of how to identify an excellent business or industry. The number of publicly-traded companies is large, so it’s necessary to quickly filter, or eliminate, companies from consideration. In this article, we explain how to avoid companies that are in commodity-like industries, or an industry is so competitive that prices are too low to make reasonable profit margins.
In Stock Research Part II we explain how to calculate the intrinsic value of a company, and give an example calculation so this lesson can be applied in the real world. We also talk about return on equity, a measure that every investor should be familiar with when evaluating stocks. In Stock Research Part III we take a deeper look at earnings per share, and use this information to help project a future stock price for the company we are evaluating.
In our last article in this series, Stock Research Part IV, we review everything that was learned in the first three lessons, and run through an example from start to finish. By the time the reader is finished, they know at least one approach to researching stocks.
There is no doubt the world of stocks is full of unfamiliar descriptions and jargon. The more information one reads, the more questions they may have about certain phrases or words used in an article. There are websites with more definitions, but those are usually single-sentence descriptions for seldom-used terms. Our investing dictionary includes definitions, calculations, explanations and examples.
Once the stock research is done, and the investor is ready to buy shares of stock, the next logical question is: How are we go about purchase those stocks? In our article Investing Money, we explain the difference between investing and saving. We also run through some of the factors to think about before engaging the services of a stockbroker.
Now this might sound like a trivial matter, but the fact is that choosing the right broker is an important part of the process. Less-than-honorable brokers can charge fees that quickly reduce a portfolio’s return on investment.
We’re all Dummies
We’ve joked around in this article by using the term “dummies” to describe the novice investor in stocks. Keep in mind that everyone starts out with very little knowledge about stocks and investing. It is not something that is instinctual, or a topic that is taught to everyone at birth.
Individuals that are truly successful have worked hard to get where they are today; and they’ve made many mistakes in the process. By continuously learning, it’s possible to minimize failures and maximize the odds of successfully picking stocks. Keep reading, and make an investment in knowledge too.
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