While most folks today
trust mutual funds and their professional managers with their investments,
it’s still important to understand the basics of the stock market.
Although investing in individual stocks may not be right for everyone, a
basic understanding of the stock market is essential to understanding the
workings of our economy and business sector.
A stock is a portion of ownership in a company. Commonly referred to as a
share, it is a small percentage of the total ownership pool for the
corporation. Shareholders are stock owners, or people who have an
ownership interest in the corporation. Today, shares are usually tracked
electronically, but in previous decades shareholders would actually
receive a certificate stating their ownership.
Why own stocks? First, you are sharing in the company’s profits. When a
corporation shows a profit, they will sometimes distribute these profits
to each shareholder, based on how much stock they own. This distribution
is called a dividend. Company’s can elect to pay out their profits or
reinvest them in the company, but as a shareholder, each time a payout is
made you will receive your proportionate share.
Also, the value of your stock will rise and fall based on the company’s
perceived value in the stock market. If you buy a share at $10.00 and it
rises to $11.00 a share, you’ve made a dollar for each share you own, and
subsequently sell. However, with this opportunity comes risk as well. If
the share price falls and you sell, you’ll lose money. The more volatile
the stock, the more opportunity for risk or profit.
Most shareholders track
their stocks using the stock table. These appear confusing and difficult
to read, but they are actually easy to understand with a little practice.
Ticker symbol is listed first. This is the abbreviated symbol that the
stock market uses to identify your company. For example, GE is General
Electric, WMT is Walmart. Once you select a company, you’ll need to know
it’s shorthand name to track its progress.
Second, the company’s name may be listed. Some tables omit the name to
save space, others list it to make tracking stocks easier.
The third item is the number of sales in the last trading day. This is
listed in the 100,000’s, so 256 means 256,000 shares were bought and sold
on the last day that the market was open.
Next are the high and low price, in that order. The high price is the
highest per share price that the stock sold for on the previous trading
day. The low price is the lowest price for that day. Since the price of
the shares moves all day long, this is a good reference to see how much
the stock is changing in a day.
Next, the closing price is listed. This is the last price that the stock
traded for as the market closed. This will also be the beginning price for
the next trading day.
After the closing price, the table will list the change, or the amount
that the stock changed when you compare yesterday’s closing price with the
closing price for the day before. This will be listed as a positive number
(the stock went up) or a negative number (the stock sold for less
yesterday than the day before).
Stock tables are found in many places, but most people check their daily
paper or the Wall Street Journal. There are many internet sites that track
stocks as well.
Of course, you’ll have to select a stock. Choose carefully or consult a
professional, and good luck!
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