A Beginner’s Guide to Understanding the Stock Market
The stock market for many people is a vague system that controls American and foreign money in an unpredictable, risky way. If you’ve been interested in investing but the idea of a possible loss scares you, you’re probably not ready. However, if you’re ready to take on a bit of risk at the opportunity to grow your worth, there are a couple things you should be aware of about how it works before diving in.
Here, we’ll uncover the mysterious inner workings of the stock market to take anyone from novice to proficient in no time.
What Exactly Is the Stock Market?
In the stock market, publicly traded companies issue, buy, and sell shares of their company. To outsiders, it may seem like gambling, when in fact, it’s far from it and far more calculated.
The main difference between gambling and trading stocks is that in gambling, you either win or lose it all, while in the stock market, you either win a certain amount or lose a certain amount. It’s far rarer to lose in the stock market than it is to lose while gambling. People are competing with their own expertise to maximize their profits.
The Adversarial Aspect
In stock markets, traders have opposing intentions. When one person sells, another must buy. Both parties can’t win; one must inevitably lose. This is why it’s important to be well in the know about your investment before sealing the deal.
What Makes Stocks Fluctuate?
Stock prices rise and fall constantly, but why? There are several factors that affect stock prices. Some of these influential forces include the media, trendsetting investors, risk, natural disasters, and supply and demand. These forces, combined with disseminated information will generate a general sentiment towards the market, either gouging or dropping the market. When sellers overpower buyers, there’s usually a fall. On the other hand, more buyers than sellers will raise stocks.
Why Is It So Unpredictable?
The stock market is primarily so unpredictable due to three main factors: stock valuation, or the point where stock prices are fairly valued; the inevitable downturn; and the influence of human decision-making.
1. Stock Valuation
One tough thing about the stock market are the many different ways to arrive at an answer of whether a stock price is valued fairly or not. In an ideal world, there’d be a simple equation to figure out if a share is worth it or not. Unfortunately, there are a number of different ways to estimate its true value, thus making it hard to know if a share is overvalued, undervalued, or fairly priced.
Having a clear idea of your stock’s value is important because, for example, if a share of stock costs $30 but is only valued at $20, the investor will be losing money. Thus, these unregulated methods of determining true value make every move a bit unpredictable.
2. The Downturn
At some point, there will be a triggering event that will reverse progress made and send stocks sinking. It’s impossible to guess what the event will be or when it may occur, so there’s always an uneasiness about what will happen next. Even “investment experts” can predict these circumstances incorrectly.
3. Human Error and Human Decision Making
The dichotomy of human nature means that everyone has a logical and emotional center. Each force has different motives, and while it’s understood that dealing with the stock market requires a sharp focus of the logical brain, it can be difficult to override emotional motivations and remain rational in thought, especially when it comes to financial motives. Essentially, our own human nature makes for an unknowable stock market system.
It takes years of studying and staying up-to-date to fully understand the complex world of the stock market, so don’t be discouraged just yet! Doing more research will help you feel more prepared once you finally make your first stock market move, so go ahead and get involved in programs like the online education and investment system by Uppercase Capital to become a smart investor before you even begin.
Becoming an investor can be an ultimately fulfilling and smart money move as long as your moves are made with careful logic, research, and a smart investment in a good company.
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