Investing All-in-One For Dummies. Eric Tyson

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Chapter 1

      Gathering Information on Stocks

      IN THIS CHAPTER

      Knowledge and information are two critical success factors in stock investing. (Isn’t that true about most things in life?) People who plunge headlong into stocks without sufficient knowledge of the stock market in general, and current information in particular, quickly learn the lesson of the eager diver who didn’t find out ahead of time that the pool was only an inch deep (ouch!). In their haste to avoid missing so-called golden investment opportunities, investors too often end up losing money.

For the best approach to stock investing, build your knowledge and find quality information first so you can make your fortunes more assuredly. Before you buy, you need to know that the company you’re investing in is

      Where do you start, and what kind of information do you want to acquire? Keep reading.

Looking to Stock Exchanges for Answers

      Before you invest in stocks, you need to be completely familiar with the basics of stock investing. At its most fundamental, stock investing is about using your money to buy a piece of a company that will give you value in the form of appreciation or income (or both). Fortunately, many resources are available to help you find out about stock investing. Some of the best places are the stock exchanges themselves.

      Stock exchanges are organized marketplaces for the buying and selling of stocks (and other securities). The New York Stock Exchange (NYSE; also referred to as the Big Board), the premier stock exchange, provides a framework for stock buyers and sellers to make their transactions. The NYSE makes money not only from a cut of every transaction but also from fees (such as listing fees) charged to companies and brokers that are members of its exchanges. In 2007, the NYSE merged with Euronext, a major European exchange, but no material differences exist for stock investors. In 2008, the American Stock Exchange (Amex) was taken over by (and completely merged into) the NYSE. The new name is NYSE American.

Grasping the Basics of Accounting and Economics

      Stocks represent ownership in companies. Before you buy individual stocks, you want to understand the companies whose stock you’re considering and find out about their operations. It may sound like a daunting task, but you’ll digest the point more easily when you realize that companies work very similarly to the way you work. They make decisions on a daily basis just as you do.

      Think about how you grow and prosper as an individual or as a family, and you see the same issues with businesses and how they grow and prosper. Low earnings and high debt are examples of financial difficulties that affect both people and companies. You can better understand companies’ finances by taking the time to pick up some information in two basic disciplines: accounting and economics. These two disciplines, which are discussed in the following sections, play a significant role in understanding the performance of a firm’s stock.

      Accounting for taste and a whole lot more