Reading One: Beginners Guide to the Stock Market

I know, understanding the stock market is a lot of information. A blown to the face.

That is the beauty of the stock market. Shall we continue?

The Dow Jones Industrial Average (DJIA): Goes back to 1986, only contains 30 companies. Companies can be removed and exchanged for other companies. Known for being large, mature, profitable and fairly stable companies. 

Some individuals decide to go into “indexing”. Indexing is a passive investing strategy that refers to any strategy that does not involve a lot of thinking, hold it for the long-term. When you index, you buy whatever stock is in the index. You just by the SPY, QQQ or DJIA, maybe buy or sell when a stock is doing good or bad.

Active investing is difficult and not everyone takes the time to understand how it works. When indexing, most people invest the same amount of money into an index every month. That way, you never buy all your stock at the very top of the market.

• Lower costs, broad-based diversification, and lower taxes.

• Owning an index does not mean you are immune from risk or losses if the markets takes a downturn.  

• Potential warnings: lack of downside protection (provide upside when the market is high, and vice versa), lack of reactive ability, no control over holdings, limit exposure to different strategies, and personal satisfaction (does not promise high rewards). 

... I know, and to finish what I learned I'll share the five common mistakes beginners make:

1. Don't buy stocks that are hitting 52-week lows.

2. Don't trade penny stocks.

   1. Penny stocks are stocks that trade below $5-$10. You're advised to buy fewer shares of a higher-priced stock than a lot of shares of a penny stock.

3. Don't short stocks.

   1. To short stocks you must first borrow shares of stock from the broker. You then sell those shares on the open market.

   2. If the stock price falls in price, you can buy back those shares at a lower price for a profit.

   3. This advice is for beginners to ignore, not advanced traders.

4. Don't trade on margin.

   1. Borrowing on margin means borrowing money from your broker in order to purchase more shares of stock.

5. Don't trade other people's ideas.

That's it, for now with stocks.