Stock Market Investing for Dummies —

A Quick Introduction to Stock Investing in 3 Easy Steps

Okay....we had a hard time with the "dummy" label. Yet, there's a whole "dummy series" of books out there that seems to be quite popular.

It turns out that the use of the word "dummy" here is just another way of saying "I would like a simplified version of this otherwise complex subject."

This Stock Market Investing for Dummies page introduces you to stock investing in three simple steps.

How Can I Make Money in the Stock Market?

There is no one answer to this. In fact, there are several ways to make money in the stock market — stocks, options, bonds, futures, etc.

What we're going to talk about is stock investing in particular

Your ability to be successful in stock investing will depend on how well you understand these three concepts:

1. Understand the difference between a stock and the company behind it:

   The common mentality in the market is to consider stocks as just pieces of paper. But these pieces of paper represent businesses. Your probability of success increases significantly if you view stocks as businesses and not mere pieces of paper.

   Once you take this view, the next logical step is to find good, solid companies..., companies that have what's called an economic moat.

2. Understand the difference between price and value:

   Just as with anything else you buy, stocks, too, have value and a price. Let's take a moment to understand the distinction between these two ideas.

   Price is how much an item is selling for. In the case of stocks, it's the amount of money you would pay to buy a company's stock in the stock market.

   Value, on the other hand, is how much the same stock is really worth to you.

   When stock prices get out of line with their value, it creates a great buying and selling opportunity. You'd buy when the price falls far below it's value, and you'd sell if the price has risen far above what the stock is worth.

   Of course, when you buy a stock, we're assuming you're following step 1 in selecting a good company.

3. Stick to your investment plan:

   Before you purchase any stock you need to have an investment plan. Quite simply, this means that you write down your target price to purchase the stock, the profit you're expecting to make, and the maximum loss you're willing to accept before selling the stock.

   Once you have this in place, you must try hard to stick to it.

   It's very hard to sell a stock at a loss .... you always keep thinking in the back of your mind that it will come back up. It might, but you have no way of telling how long that would take. Your best bet is to bite the bullet and sell ... in other words, follow your investment plan.

   The same applies when the stock moves in the other direction.

   Your greed may prevent you from taking a profit at your predetermined price. There's no way of telling if the stock can sustain the high prices. If it were to drop suddenly, your entire gain could be wiped out. Again, follow your investment plan.

Ok.... so how exactly do these three "Stock Market Investing for Dummies" concepts increase your probability of making money?

When you buy great companies at large discounts, sooner or later the stock market corrects the discrepancy between price and value. And when it does, your return on investment is very healthy.

In summary, our Stock Market Investing for Dummies section covers three key points. If you think of stocks not as mere pieces of paper, but businesses, understand the difference between price and value, and stick to your investment plan you are on the road to successful stock investing.

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