The Best Free Stock Advice

Where fortunes are made and destroyed: Wall Street

The stock market is not just a sophisticated version of Las Vegas. Middle class investors without the time or ability to do their homework are wiped out quickly. They often would have been better off in Atlantic City, especially when "everyone" is investing in the market. For the novice, there are a few ideas to always keep in mind to understand how the stock market works and how money should be invested.

Features

The basic slogan in investing is do your homework. Do not rely solely on the web or world of mouth. If you are investing cash in a few firms that seem promising, do some digging. Check on management changes, cash flow and international investing. Do not merely follow the fad at the moment, no matter how much "smart money" you think might be riding on it. Keep your head.

Function

The purpose of the stock market is for firms to raise money, not to make a quick buck or to act as the barometer of the economy in general. Stock prices are based on a lot more than their current cash-flow issues. The number of shares issued, market fads, temporary setbacks and threats of inflation can all alter stock prices that have really nothing to do with long term cash flow or firm value. Yet, these are your main investing variables.

Benefits

The main benefit for the small investor in the market is to share in the profits of successful companies. But what makes a successful company is a good product, a good idea and a good campaign. While perception is always important, it is the objective life of market relations that really matters. What is in demand and why should be the main question on your mind. In times of instability, look for stability like gold or oil. In times of prosperity, one can look to new products and ideas like solar energy or hybrid cars.

Effects

Stocks usually get cheaper for a good reason. Nevertheless, do not get involved with stampedes either in favor or against a stock. If you are well diversified and hedged, especially in professionally packaged mutual funds, take a wait-and-see attitude. If you are a beginner, go with mutual funds. If you feel confident later on, then take risks, but early in the game, go with the pros.

Misconceptions

Market wealth is something different from actual value. If a stock climbs in price because of the stampede mentality, this---in itself---has nothing to do with firm value. Where research and specialization comes in handy is in figuring out this all important distinction: price versus value. The good investor worries only about the latter, while the amateur considers only the former.

References

• Stocks for Beginners: 22 Biggest Mistakes You Must Avoid When Investing In Stocks
• Stocks for Beginners: Stock Market Basics