The Top 5 Basics of Stock Market Investing

What are the fundamental things you should know before investing in stock? How can you be sure you are making the right decision with a stock investment? In order to make a wise investment decision that will pay you an income over the years to come, you must first learn the basics of stock market investing. The top 5 basics of stock market investing help you to gain a better understanding of the market and your financial goals so that you can maximize your return and minimize your investment risk through informed decisions. What are your Stock Market Investment Goals? Ask yourself why you want to invest in stock and what your goals of stock market investing are. Then figure out if and how the stock market can help you meet those goals. If your goals are long term ones of income or growth and you are willing to ride out the market in a long term investment strategy, then the stock market is a good place to invest your money. But if you're looking to make a quick buck, then the stock market becomes a very risky venture. The stock market is all about risk; therefore the basics of stock market investing include understanding risk, figuring out how much risk you want to and can take on and how to minimize your risk. Get your Personal Finances in Order. Before you can even think of examining another company's financial records, make sure your own house is in order. Get your personal finances in shape by preparing a basic cash flow statement. If your incoming cash (income) is greater than your outgoing cash (expenses), and you have set aside monies for an emergency, then you probably have money left over for saving and investment purposes. But if you're in debt or barely meeting expenses, then this might not be the best time to invest in stock. Wait till your financial situation improves before you consider stock investing. Understand how Stocks are Valued. Two stocks of equal share price are not necessarily equal in terms of value. There are other factors at play that determine the true value of a stock, such as the earnings, health and direction of the company, the state of the industry and economy and any future trends unfolding. A company's market value is typically measured by its market capitalization. Market "cap" is simply the number of outstanding shares multiplied by the share price. So a firm has a market cap of 100,000 if 10,000 shares are being offered at $10 a share. Generally speaking, the smaller the market cap, the riskier the venture. That's why it's important to look at all the factors before deciding the value of a particular's company's stock. Make a Plan and Pick an Investment Strategy. Ask yourself questions such as whether you will be investing in stocks directly yourself or will you hire a brokerage firm to do it for you and advise you every step of the way. Which method will you feel most comfortable with? Will you be an aggressive investor looking for relatively short to intermediate term gains (2-5 years) or will you be a long term investor (in it for the long haul at 10 or 20 or more years). Will you be investing in stocks to receive a steady income the next few years (investing for income) or are you investing because you want your income to multiply and grow at an exponential rate (investing for growth)? The answers to these questions will determine the investment strategy that will suit you best. Keep your Eyes and Ears Open for Stock Tips! Keep your financial antennae tuned to the financial and world markets. This way you will have a pulse on developing stories and start to make informed decisions of growth or slump. You must learn to read the warnings signs that precede a recession and the exuberant signs that precede a boom. The real secret to stock market investing is to look at all the pieces of the puzzle to form the big picture, rather than looking at just one or two factors. Learn all the basics of stock market investing presented here and you will understand how they complement each other ' and that is the key to making a killing in the stock market!