Pretend for a moment that you do not understand anything about the stock market. Most of us do not have to pretend, and that include many who are investing in the stock market.
When asked for a book about the stock market, I refer people to the Internet, that ultimate source of knowledge. But the truth is, I am too lazy to find a book that might meet their needs. Plus, for basic information, books are all the same.
The web site investopedia.com is a great source of basic information. For 18 months, I wrote and edited hundreds of the definitions on the site. So what is the stock market?
“The stock market refers to the collection of exchanges where the trading of equities or stocks of publicly held companies takes place. It provides companies with access to capital in exchange for giving investors a slice of ownership.”
Further, “It lets investors participate in the financial achievements of the companies, making money through dividends. Investors also make a profit by selling appreciated stocks. This is known as a capital gain.” But that is like saying that the “wet market” is a place to buy food. It seems to make sense but it is not accurate. A wet market is where you buy the raw materials to make a meal unless you are into eating uncooked pork.
How can we more easily understand this “make a profit” concept?
Stock market investing is not like buying a lotto ticket in that the profit outcome is not determined by chance and you can increase your winning odds in the market just like you can at the casino.
The stock market is not about buying the stock of a company that was incorporated on the same date you were born. It is not like trying to figure out if “red” is going to come up again on the roulette wheel after seven times in a row.
As I have said many times, I became interested in the stock market because stock prices were in the newspaper right after the horse racing results. For me, what I saw was that the stock market was like picking the winning horse.
How do you pick a stock market winner? Stock market “experts” want to make this seem as difficult as possible? To win the race, the horse must run faster than the rest. Therefore, we have to figure out what factors will make one horse stand out. The best way to do that is to look at the horse’s “track record” of performance against horses similar in class to what is running today.
For a stock price to go up, other people—many other people—must buy the stock and we have to figure out what issue they are buying. That is much easier than you think. The performance of a stock is found on its price chart, which is easily obtainable on the Internet.
Universal Robina Corp., the maker of C2 drink, went from P8.10 a share in January 2010 to P230 in March 2015. Lots of people were buying. The “why” they were buying is not important to you. Even if you waited until the price was P100 in 2013, you still could have doubled your money.
Currently, the price is P130 but you also could have easily seen people stop buying at P230 because the price started going down. Making money in the stock market is relatively easy even for the beginner. There is only one rule. Buy when the price is going up and sell when the price is going down.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.