The Stock Market: Complete Beginner Guide

With so much volatility in the stock market over the last couple of weeks, it's a good time to refresh your stock market IQ. Here's a preview of my article: The Stock Market: The Complete Beginner Guide. If you're worried about your portfolio, going back to the fundamentals can help you make informed investment choices.

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The stock market is the most well-known place to invest. It is fast-paced. It is glamorous. Millions of dollars are made and lost every minute the market is open. It can be intimidating to get started, but once you get a grasp on how it works, you will understand why there is no reason for you to be afraid to invest in the stock market and get your fair share of the gains.

What is Stock?

Simply put, a stock is a small ownership in a publicly owned company. When companies wish to raise funds, they sell a portion of the company to investors. That ownership is represented by shares of stock.

A small, private company owned by two members of a family may not have formal shares, though each family member would be considered to own half of the stock. Companies with more investors are likely to have more formal documents defining each party’s ownership.

As companies grow, their valuations generally increase. Each time a new investor puts money into the company, the two sides negotiate the value of the company and how much of the company will be sold to the new investor. This is best known for taking place with startup companies and venture capital firms, though many other types of investors exist.

Once a company hits a certain point, its owners may decide to hold an initial public offering (IPO) of the company’s shares. When this happens, any investor, large or small, can purchase shares of the company through an organized stock market like the NYSE or NASDAQ.

When a company goes public, they can raise a lot of money very fast. A recent, and infamous, IPO made Facebook a public company. On the day Facebook went public, it raised $16 billion in funds and made the owners very, very rich. The largest IPO ever raised $17.9 billion when Visa went public in 2008.

Day-to-day decisions of public companies are left up to a CEO and executive team, but the overall direction of the company is determined by an independent board of directors charged with representing the investors’ best interests. Shareholders are given the right to vote on the board of directors and other major decisions at an annual meeting or via a proxy ballot.

Corporate executives and board members are required by law (in the United States) to do everything possible to maximize shareholder value. When you cast your vote, you are giving those leaders the make the best business decisions on your behalf.

Want to learn more? Check out the full post. The Stock Market: The Complete Beginner Guide.