Understanding Stocks

Investing in stocks begins with a basic understanding of what stocks are, where they are traded and some fundamental rules.

Stocks are the basic units of ownership in publicly traded companies. There are two basic types of stocks.

How stock prices are set may seem like an alternate reality, however once you understand some of the factors it is less confusing.

When the economy and stock market is uncertain about the future, fear drives prices and trends.

When the stock market heads down, investors need to understand what is happening and why and what they should and should not do.

The balance between supply and demand sets stock prices. When demand is high and supply is low, prices rise. When supply is high and demand is low, prices fall.

Investors sometimes forget that there is no guarantee with stocks. They could lose their entire investment.

Stocks that pay dividends provide you with regular income, even if the stock's price is bouncing up and down.

Measuring the performance of your stocks requires information on competitors.

What happens to your stock or bonds when a company goes bankrupt?

What are the main types of corporate bankruptcy?

Whether stock or bond holders receive any money from bankruptcy proceeds depends on several factors.

Deflation is the dramatic drop in prices across the board. There are too few buyers for too many goods.

Bull and bear markets go together and are necessary for an efficient market.

The commercial paper market is of vital importance to the economy. When it doesn't work, bad things happen.

Stock investors would do well to avoid market and economic extremes as part of their investment plan.

Recession and inflation both pose dangers for the stock investor, however many fear inflation the most.

Momentum in the stock market can be a powerful force, but it is often wrong because it is driven by emotion and not logic.

Stock prices are driven by the relationship between buyers and sellers. Attractive stocks have more buyers than sellers, which drives up prices, while less attractive stocks feel the reverse effect.

Bear markets happen, but if you prepare your mix of stocks and bonds you have a better chance of coming out with less damage.

Turmoil in the stock market may tempt investors to drop their investment plan and react to the market. That's a bad idea.

Buying in a market downturn may be a good way to pick up good stocks at bargain prices.

The movement of the S&P 500 tells us whether the stock market is a bull, bear or in a correction.

Short sellers, who profit when stocks fall, sometimes get caught when the market moves against them. In covering their shorts, they create a mini-rally.

You are making a mistake if you try to time when a down market will turn around. Research shows you are better off staying in the market.

Companies with compelling stories may sound attractive, but it takes more than interesting ideas to make a good stock investment.

The stock market closely watches interest rates for signs of change. Lower rates mean more money in the economy.

A stock's P/E is a key valuation measurement investors use to determine how much to pay for a stock.

Investors are buying future growth when they invest in stocks.

The stock market is subject to periodic sell-offs that do not necessarily indicate a long-term downward trend.

When a company has too much cash, how it deals with the situation tells you much about whether this is a stock to own.

Stocks are a long-term investment and you shouldn't hold money you'll need in five years or less in stocks - they are too volatile.

Pump and dump stock scams can cost you dearly if you fall for their hype.

Preferred stock has some unique features, however don't let the name fool you, these shares leave much to be desired.

Betas tell you a lot about a stock's volatility, however checking multiple web sites you may find different answers to that question.

Don't fall into the trap of expecting a 10% return from your investments because that's what the market's averaged.

Investors break the market down into sectors by company business. These sectors make is possible to compare how a stock is doing relative to its peers.

There two forms of diversification you should know to make your portfolio less volatile.

The Fed is the single most important federal agency for stock market investors because its actions directly affect the markets.

Market index futures give you a clue about what traders think the market is going to do the next session.

It is important for investors to understand the different terms used to describe shares of stock such as authorized, restricted, treasury, float and outstanding.

Inflation is a major threat to the stock market and investors, especially those heavily invested in fixed income securities.

Cyclical and Non-Cyclical Stocks react differently in changing business cycles. Knowing the difference between Cyclical and Non-Cyclical Stocks can make you a smarter investor.

The real rate of return on an investment factors in inflation and taxes to give you a clearer picture of how much your purchasing power has increased.

Market indexes like the Dow, S&P 500 and Nasdaq Composite, can be useful tools if you understand what they do and do not represent.

Dividends are a way companies distribute a portion of their profits to shareholders.

Stock splits occur when a company splits its outstanding shares, usually 2 for 1. This reduces the share price and increases the number of outstanding shares.

Stock buybacks can be a good deal for stockholders or a smokescreen to hide weak financial ratios.