The stock market provides an investor the opportunity to earn profits through stock price gains and income from dividends. A share of stock is a piece of ownership in the company. The stocks of most companies trade on the New York Stock Exchange or the NASDAQ stock exchange.
Stocks are purchased through a stock brokerage account. In an online brokerage account, an investor will select the stock to buy and enter the stock symbol and number of shares to buy. The broker will charge a commission of $5 to 10 to buy or sell shares over the Internet.
There is a lot of financial news about the stock market. The overall changes in the market are indicated by stock market indexes such as the Dow Jones Industrial Average, S&P 500 and NASDAQ Composite. Stock indexes track the value changes of a select group of stocks chosen to give a picture of how the broad market or specific market sectors are performing.
When most of the stocks in the market are going up for a period of time that stretches into years, it is called a bull market. A bear market is when the stock market and most stocks decline significantly in value. A bear market typically lasts 6 to 9 months.
Market sectors are groups of stock in related industries. The universe of stocks is usually divided into 10 to 12 major sectors including energy, financial, technology, consumer goods, industrial companies and materials.
Investors evaluate stocks based on criteria for the profits or earnings per share of companies, how fast the companies are growing and the dividends paid by stocks. Dividends are a payout of profits to shareholders. Some stocks pay dividends and other companies choose to reinvest profits into the growth of the company.
Some different stock picking strategies are: Blue Chip stocks are the large stable corporations like Coco Cola and Johnson & Johnson. Growth stocks are companies that have profits and sales growing faster than others in their sectors. Value stocks are companies that have intrinsic value greater than indicated by the stock price. Large cap stocks are companies whose total stock market value exceed $10 billion. Small cap stocks have market caps of $1 billion and less. Mid cap stocks fill the middle.
An investor can combine different strategies in his investing style and stock portfolio.