The stock market has been around since forever, making rich people even richer. What was once reserved for the wealthy is now incredibly accessible thanks to online platforms such as Robinhood and Webull. In case you don’t know how the stock market works (it’s not taught in school, after all), here’s a 101.
Investors can buy or sell shares of Tesla, Apple, or any company listed on the stock exchange. Nowadays, this happens digitally – it’s not like in movies, where guys on Wall Street scream at their telephones. If the stock market is growing, it’s called a bull market; if it’s declining overall, it’s a bear market. You can invest in an index fund, which holds shares from many companies and is safer, or you can invest in individual stocks. This is where it gets tricky.
How do you, a new investor, know which stocks to buy? You could look at high-growth stocks like Shopify that everyone is buying, but their price is already high, and you could be buying into trades that are past their prime. You could alternatively search for value stocks – companies that are undervalued. But you need to be able to really read a balance sheet to identify who they are. It requires a lot of knowledge of company stats and world trends to choose the most promising stocks.
Trading platform Etoro conceded that 76% of new investors lost money in their first year. If the market is generally going up, why is that? Well, psychology is at least 80% of the game. During a bear market, when your stocks are temporarily losing value, it’s tempting to sell, which is what newbies do. This is called “panic selling” and it loses you money. Waiting usually means that the stock will bounce back, but that requires mental grit. On the other hand, seasoned investors make money during a crash, when stocks are “on-sale”. For new investors, that seems counterintuitive, so they don’t take advantage of the situation.
There are also those who prefer investing in dividend stocks, which means you receive some of the profits of the company each quarter. But you’d need to own many stocks to get any significant amount of money from these.
The best investors in the world make 10-15% on average, but new players make less or even lose money. For an individual investor with no background knowledge of the markets, investing in stocks is a form of sophisticated gambling.
If you do invest in the stock market, make sure to read up on bears and bulls, or you’ll end up looking like a buffoon.