Understanding stocks

Despite my best efforts I have been unable to understand how the stock market works. I’m interested in learning how to invest in stocks specifically. What I would really like is an explanation (in laymen terms) or at least a push in the right direction. Thanks!

For starters, you could check out the staff report on the subject.

Buy low. Sell high.

Don’t by Enron.

Enron would actually be a smart buy. Low price and they ain’t going out of business.

I was actually just throwing it out as BS remember all the case studies I had to do on them and their accounting practices. Now that I look at their stock, it’s at $7.50 which is way up from last year. Interesting.

How does the stock market work???

Now there’s a good question. You can look at the “staff report” link provided in an earlier post to find out how the mechanics of the stock market work, but if you intend to make money buying and selling stocks, you must, more importantly, understand the psychology of the stock market.

There are many variables that drive stock prices. Some people try to oversimplify securities analysis by studying fundamentals or technicals. Both of these schools of thought are helpful in choosing which stocks to buy (or sell), but neither one is right all the time. There are risks involved with trading stocks, some of these risks you have a bit of control over, others are completely out of your hands. You need to evaluate where your risk tolerance lies. Your tolerance for risk will define what stocks will be best suited for you to trade.

As far as market psychology, there are two main emotions that move stock prices: greed and fear. If you can control these emotions while watching your portfolio gyrate several thousand dollars by the minute, you will have mastered stock trading.

Many years ago, I educated myself on the fundamentals of investing by joining AAII. I belive AAII a good place to start.


Masters of stock trading are quite unconcerned with minute-to-minute fluctuations in the market. They’re in it for the long-haul, baby. Day-trading is not that much better than a slot machine.

I think what is always true about the stock market, no matter what anyone says about some golden rule … it depends.

It depends on your time horizon.

It depends on your risk tolerance.

It depends on your return expectations.

It depends on the general direction of the market.

It depends on the mood of today’s news.

It depends on …

There are day traders, short term players, mid term players and long term players. It just depends.

Some of the richest people on Wall Street are day traders (market makers).

Also, some of the richest people on Wall Street are long term players (Buffett).

It just depends.

There are no golden rules on Wall Street. Whenever you talk about the stock market you have to qualify your answer with “it depends”.

If you can keep your head when all about you
	Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
	But make allowance for their doubting too;
If you can make one heap of all your winnings
	And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
	And never breathe a word about your loss;
If you can force your heart and nerve and sinew
	To serve your turn long after they are gone,
And so hold on when there is nothing in you
	Except the Will which says to them: "Hold on!"

I’ve always liked that poem by Kipling.

I do realize their are all sizes and shapes of stock traders. There’s the day traders that are in and out of a position in a matter of minutes, there’s are mutual fund investors who buy highly diversified funds and hold for years, and then there’s everyone else in between. No one is right, no one is wrong, it’s all a matter of risk tolerance, and expected return.

To quote an expression from previous posts, “You would be better served by going to the library and reading up on stock trading, than you would be by actually listening to the posts on a public discussion board.”