Understanding The Stock Market

Understanding The Stock Market Is Not Hard

The key to understanding the stock market is patience and persistence. It’s not as hard as you may think, you just have to study and and willingness to constantly learn. The stock market is always changing and what happen during the last correction mostly likely will never happen again in you lifetime. What was also done to rebound from the correction will always be different.

You can pretty much say that there is something new everyday when dealing with the stock markets, that is part of the reason I love it so much. I’ve been known before to have what they call Attention Deficit Disorder, but I guess that’s why I do pretty good trading stocks. What I did yesterday or last week on one trade will have to be a little different for the next because the particulars that are involved.

If that makes your head spin to think that what you learned with your former trades will never be used again, don’t get too dizzy. The experience from the past will help you be aware of the signs that are out thee when times start to get rough.

I listen to analysts all the time on different programs and in the magazine that I read and with all their education and degrees that they have, they still get it wrong quite a few times. No one can know everything, but the more you know the better off you and your portfolio will be.

Take a look at what happen with Lehman Brothers in 2008, they were looking to be bailout of their financial woes and didn’t get the government support. They ended up going bankrupt and their stocks fell to $0.03. Late in the year General Motors and Ford Motor Company while facing the same problem, had their shares fall to the $1 range. If you were to think that the same thing was going to happen to the automakers, you would have been wrong. A couple of weeks later the share of the two companies jumped almost 300% each.

Understanding the stock market is not hard if you just study the issues at hand and learn from your experiences. The basics are easy and once you have that down, it’s a walk in the park.

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What Is There To Understanding The Stock Market?

There are many things involved to understanding the stock market. There are too many to list in just one post. Instead I’ll just focus on one in this particular post that has been in the news lately.

What happens to a stock after it’s been beaten down so bad? Does it have a chance to recover and come back stronger than it was i the past? That all depends on the company that issues those stocks. To think that Lehman Brothers will work their way out of bankruptcy and continue their history that they’ve created over the last hundred and fifty eight years. I doubt it very  much, as a matter of fact they’ve already been dived up to others in the industry so my advice is don’t buy their stock, it’s worthless.

As for other companies like general motors or even Ford, they stand a better chance since theybring a lot more to the bargaining table. What they bring is not only the product they make, but the jobs that are created for those products to be made.Between the two companies they employ hundreds of thousand employees. If the companies were to go out of business, it would add to the already high level of unemployment.

This country wouldn’t be able to handle that in a timely manner that it would cascade into other sectors of our economy. The government doesn’t really have a choice but to reach out and assist them like they did in the financial sector.

Would I invest in General Motors or Ford? Not at this time. There are too many variables to consider this a possible trade. You need to understand that because of these problems in the auto industry, big investment funds and hedge funds are going to stay away from them. Without the smart money investing in these companies, they will have troubles getting their stocks back to any descent level to make any respectable gains.

My advice is tostay away from any stocks that are issued by companies that are in any fiscal trouble. There are too many other strong companies out there to waste your time on a long shot. after all this isn’t Las Vagas.

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Understanding Points In The Stock Market

In our last post about understanding the stock market, a visitor named Shirley asked about points in the stock market. In this post I will explain what people who cover or talk about the stock market mean when they refer to “points”

When someone says a stock went up or down 3points today, what they are referring to is that the stock went up or down $3 in value. This is quite different when talking about the DOW (aka: Dow Jones Industrial Average, DJIA), in this case it’s referring to the gage that is used to average out the entire market. Right now the DOW is sitting at around 8500 points, If the DOW falls 100 points, it would mean that it would be around 8400 points.

The second way you will hear someone mention points is when they talk about the Federal Reserve Bank and the interest rate that is charged by them when they lend money to any financial institution. In this case, the value that they put on points (you will also hear it refer to as “basis points”) is much less. 1 point is equal to 1/100th of one percent. Let’s say the interest rate at the moment is 2.5% and you hear on the news that the Federal Reserve Bank lowered the rate by 50 basis points. That would mean that the new interest rate is 2%. This point measurement scale is also used when dealing with bonds and treasury bills.

There a few other ways that the term “points” are used. Many of them would be too much to explain on this site. Basically they refer to some sort of measurement or another within the stock market, including real estate, mortgages and loans.

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