Stock market basics

Stock means ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares. Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim than shareholders. This is generally why stocks are considered riskier investments and require a higher rate of return. You can lose all of your investment with stocks.

On the other hand, you can make a lot of money if you invest in the right company. Stock markets are places where buyers and sellers of stock meet to trade. The NYSE and the NASDAQ are the most important exchanges in the United States. Stock prices change based on the supply and demand for them. There are many factors influencing prices, the most important being earnings. If you are interested in buying stocks, you have to either use a brokerage or a dividend reinvestment plan or DRIP.

In a stock market, there are 2 types of players – Bulls and Bears. A Bull market is when everything in the economy is great, people are finding jobs, GDP is growing and the stock prices are rising. However bull markets cannot last forever and sometimes they can lead to dangerous situations if stocks become overvalued.

A Bear market is when the economy is bad, recession is looming and stock prices are falling. Such market conditions make it tough for investors to pick profitable stocks. It might be better to wait until the market is anticipating a Bull run again.

The other animals appearing in a stock market are the Chickens and Pigs. Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets altogether. Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.