Newbies, let’s start with the basics- What are stocks? Before you begin buying and selling stocks you have to understand what they are.

Stocks are basically a share in the ownership of the company. If you own stocks of a certain company then technically you own part of that company. Stocks are issued or sold by the company to raise its capital. If the company performs well then the price of its stocks increases and the investors make money. On the other hand, if the company fails, then investors loose money. So, investing in stocks can make you a lot of money, but there is also the risk of losing everything.

Although I said owning a stock is like owning a piece of the company, but that does not mean you have any say in the day to day running of the company. The only main power you have as a shareholder of a public company is the power to vote to elect the board of directors. The power of your vote depends on the number of shares you hold. In short, more shares more power.

Another important thing about stocks is limited liability. If you own stocks of a company, you are not responsible for paying the debt of the company. You are entitled to unlimited profit (due to increase in the value of shares and/or dividends), but you can only lose what you have invested.

Did I say unlimited profit? Yes, I did. In theory, the price of a stock can go to infinity, but it never ever happens. Although, there are many cases where the profit have been more than 1000% or 5000%. In fact, much more. Yes, there are risks and there are rewards. You can let your cash sit in your savings account and get a measly 2-3 percent every year or invest into something with way more return potential.

Maybe you prefer keeping your money in the savings account, but my advice to you is at least understand what stocks are and how to buy and sell stocks. Ignorance is not always bliss, it only causes opportunities to be missed.

To all the Stock Noobs, I will end this post with an old Chinese proverb:

“Give a man a fish; you feed him for a day. Teach a man to fish and you feed him for a lifetime”

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