It IS basically gambling. But often a gamble that pays off.
To start right at the beginning, imagine you're running a business and you need more money to expand, branch out, open up another shop, whatever. You could borrow it from the bank. But another thing a company can do is issue shares and get some money that way. You sell shares in the company and people who buy them become part-owners of the company.
Once the shares exist, they are something that can be bought and sold on the stock market and the price goes up and down depending on whether there are more buyers than sellers, and how good the market feels about your company.
The aim of investing your money in shares is to be able to sell them again at a profit. Usually you will get dividends too - as a shareholder you are a part-owner of the company and the company will share some of the profits with you as a dividend. But the real money is made from selling at a profit. It's a risky thing to do but if you spread your money around in different company shares, you spread your risk. And on the whole, your money grows more than if you put it in a bank savings account.
You could get really interested and spend oodles of time following the market, deciding when to buy and sell... but remember that whenever you buy or sell, you need to pay a stockbroker to do it and mucking about too much will wipe out your profit.
A simple way to get in on the act is to put your money into a unit trust. This pools your money with other people and the fund manager will put it in the shares they think are the best. The fees are small because they can make big purchases and sales. One I really like is an index-tracker unit trust. This just puts your money into all the biggest companies quoted on the stock market. Those are likely to be safest and I've done better than putting my money into a savings account out of that.
go to the library...
The two most basic ways to make money in the stock market:
1) buy low, sell high.
That's not unique to stocks. You can do that with stocks, stamps, commemorative plates, or anything else you can sell to Chumlee.
2) buy, hold, collect dividends.
When a company makes a profit, the owners have a right to write a check from the company's profits to themselves.
That's one of the big privileges of owning a company.
With stock, there are several part-owners.
They get together, vote on a committee to oversee the company, then the committee, or "board of directors" decides how big a profit check, or "dividend check", they will write.
Read "How I made 2,000,000 in the stock market" a non technical primer on trading stocks. I read once a year.
Here's what it means to own stock:
Whoever owns the shares of stock are the owners of the public company, no one else. When you buy a share of stock, you are then one of the owners of that company. It could be any of over 13,000 companies that are traded with stock on the open market such as McDonald’s, Coca-Cola, Amazon.com, Ford, Krogers, your local bakery or electric company.
As a company earns money, it becomes more valuable and this value is reflected in the price of its shares on the open market. You can collect this increase in value when you sell your shares for more than you paid for them.
The company’s board of directors makes the major company decisions and decides what to do with its net earnings.
?Some or all of the earnings may be re-invested in the company so it can grow, open new stores or make repairs. When this is done, the earnings money is used up but the company is more valuable by that same amount.
The per share price, having increased because of the earnings, retain that increase when the earnings are re-invested in the company.
?Some or all of the earnings may be given directly to the shareholders and this is called a dividend. They just mail you a check or send the money to your brokerage account. This makes the price of the stock decrease by the same amount as the dividend, so you have the same value in the total of stock and dividends.
Since you are an owner of the company, the members of the board of directors work for you. You can inform the board of your ideas, concerns or recommendations and these carry the weight of your shares.
Each year there is an election and you can vote for the board positions and some special rulings, one vote for each share that you own. If you own at least 51% of the shares then your vote always wins in the election.
You are also protected when you own stock. For instance, if your company gets sued and loses more than it can pay, the law cannot come to you, one of the owners, and confiscate your house or other property. The value of the shares may decline until they become worthless, but that is all you can lose.
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If you buy stock hoping that you can sell it for a quick profit because of the daily or monthly swings in price, then you are gambling rather than investing. You are trying to guess better than the public, including professionals, how the price will change.
To truly invest, choose a company that has steady earnings each year instead of losses. If your company has very little long term debt, it will likely not get into financial trouble.
If you buy these quality stocks and hold on to them for a period of time, the share prices will go up for a real reason - the companies are earning money every year and becoming more valuable. This is not gambling; you are owner of a money making business.
If you save a portion of your income each payday and as it accumulates invest in stocks, over the course of several years you can grow very wealthy indeed. It is like hiring someone to get a job and earn money for you, and then using that money to hire more workers. Your money grows exponentially.
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Selling stock (partial ownership of a company) and bonds (partial ownership of loans payable by a company) are ways for a business to obtain capital in amounts and for terms that would otherwise not be available to it. This is a way to fund the business. Buying stock allows individuals, and other businesses, to own a piece of the company that they believe will perform well over time. In return, the owner of the stock shares in the appreciation or depreciation if the company does well or poorly. The company may also offer a regular dividend for each share owned. Stocks are traded between buyers and sellers, and occasionally by the company its self, on an exchange market. Companies pay to be listed on a market. The individual buyer/seller accesses the exchange market through a brokerage and pays a fee for each buy or sell order. Bonds can also be bought and sold on an exchange market, or held to maturity when they are paid back by the company at a premium. You could characterize the stock and bond market as legalized gambling, but investors typically do a lot of hard work to research and plan their investments (I guess bookies do too), and the whole system supports our economy in very important ways, not the least of which is the tax revenues generated.
From watching the wolf of walstreet I realised how uneducated I am in regards to the stock market. I don't understand any of it, like the whole concept. Why do people buy shares of businesses? Is it because they make a profit from just doing that or that they plan to sell it to someone else? If so isn't that just another way of gambling with the illusion of doing business. If somebody could just shed some light here on the very basics as to the the point of the whole thing then I'd be grateful. Thanks
