So Many Shoes, So Little Money – Blog

Stocks

Buying stock is buying ownership in an individual company; how much ownership depends on how much stock you buy. When you buy a share of stock, you are buying a small piece of everything the company owns and owes. So, for example, if a stock is selling for 110 dollars per share and you ask your stockbroker to purchase one hundred and 10 dollars worth, you now own one share of the company. If the company has one hundred thousand shares total shares outstanding, you just bought .00001 percent of the company.

Stocks are traded on a stock market. You buy stocks with the help of a stockbroker who is sort of like a personal shopper for stocks. There are well over 2,500 different companies whose stocks are traded on the New York Stock Exchange (NYSE) alone. Companies earn money and lose money. As their fortunes go, so does their stock. By owning their stock, you can make or lose money right along with them. Examples of the different kinds of familiar retail stocks you could own are: Abercrombie & Fitch, Saks, Nike, Polo and Ralph Lauren. Not only can you own a piece of these companies but you can show your brand loyalty by wearing them.

Think of a stock market as resembling a department store where you can buy all sorts of designer clothes, cosmetics, shoes and bags in one place. In the stock market, you can buy stocks and bonds and other financial instruments instead. In the United States, there are two main markets: The New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Internationally, there are lots of others, like the London Stock Exchange and the Hong Kong Stock Exchange. You can shop at these markets just like you can at any other market, as long as you use your broker or have an investment account which will let you purchase directly.

Each market (or exchange) lists all of the stocks and other financial instruments it sells. You can browse all the offerings, narrow down your selections and hone in on your purchases. You can even try on, before you buy, by selecting a stock to watch. Don’t spend any money until after you have watched it for a while and also learned something about the company. See how much it fluctuates, the price of stocks constantly changes and you have to be sure that the stock you are watching is a value at the price at which you decide to buy it at. If the shoes were a steal at 125 dollars, would you still think they were worth buying at 200 dollars?

I do not recommend owning individual stocks unless you really know what you are doing and can afford to lose some money. The stock market, particularly now, can be a raucous place. When you are starting out, it is much better to own a professionally managed mutual fund or, even better, an exchange traded fund, which uses a different kind of shopping approach than that of buying stocks.

2 comments January 12th, 2009

Madoff Lesson

One of the worst of the recent horrible headlines is the $50 billion dollar swindle perpetrated by Bernie Madoff. If you have not been following the saga, you should. It provides a valuable lesson about why understanding money and taking control of your finances is so important.

In a nutshell, Mr. Madoff paid early investors with money from later ones. He did this for so long, and on such a large scale, he convinced folks that whether the stock market was rising or falling they could invest with him and receive the same return – earn money on their money – without any risk.

Through understanding money, you understand the risks involved with investing. A higher return on investment almost always comes with a higher risk of losing your money. Most of us already know there is no such thing as a free lunch – or a free dinner. The same is true of investing: If something sounds too good to be true, it probably is.

Add comment January 9th, 2009