How to Interpret the Stock Market
Whatever you read about the stock market, take the information with a grain of salt. Everyone seems to have an opinion about the stock market, yet only a very small minority succeed occasionally with their own investments, and only a smaller group succeeds consistently. Thus, interpreting the stock market is a highly prized skill and one that is equally difficult to acquire. Nonetheless, there are some tried and true methods for interpreting the economy and the trajectory of industries and companies that the stock market represents.
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Instructions
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Study economics to the most advanced degree that you possibly can. Frequently, the best stock market interpreters are people who work in the financial industry and have a strong academic background in economics. For example, the most successful hedge fund managers have an advanced degree in economics (and mathematics, in many cases) and a decade-long relevant work history.
However, some knowledge in particular is especially useful, including coursework in microeconomics, macroeconomics, microeconomic theory, macroeconomic theory, calculus, econometrics and financial markets.
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Consult online and book resources for information about investing and understanding the stock market more generally. The more you read about the stock market, the more you will learn about how it works, and the more capable you will become on a day-to-day basis in interpreting the stock market. Barron's, Kiplinger, Investor's Business Daily, Reuters, The Economist and Forbes are some resources worth consulting online. Some authors you should look into are Benjamin Graham, Jason Zweig, Jason Kelly and John C. Bogle. Visit your local library's section on investing and personal finance for more resources.
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Begin investing in the stock market in small amounts. Putting some of your own money in the game will help you learn the way investors think about the market, providing you with insight that is typically not achievable from just reading books. As your investing acumen increases, consider investing a greater amount of money. By studying economics, reading about the markets and making investments yourself, you will gain greater skill at interpreting the stock market.
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Tips & Warnings
If you are a small investor, consider using Charles Schwab, Zecco, Scottrade or other easily accessible, low-premium online brokers for your personal investing activities.
Never become overconfident in your ability to interpret the stock market. Overconfidence and an excess of greed often leads to mistakes. In the words of investor extraordinaire Warren Buffet, "Be fearful when others are greedy, and be greedy when others are fearful."
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