How does the stock market work? How do investors use the stock trading to increase their wealth? Let’s have a quick look at the fundamentals behind the stock market and then you will never again have to ask how does the stock market work.
Warren Buffet once said that “The stock market is simply the transfer of wealth from the impatient to the patient”. What does Warren Buffet (the greatest investor of all time) mean by this quote? Apart from the obvious I think what he really means is that it is the truly educated investor that will be able to take advantage of the stock market. So I highly applaud anyone that is trying to find out how does the stock market work before you start putting your hard earned money into stocks that you know little about. I think the stock market is very similar to the ocean. It shouldn’t be feared, rather it should be greatly respected and if you treat it with respect it will bring you great happiness.
So how does the stock market work? Well when you buy a share you are effectively buying a tiny little piece of a company. I know it may sound weird but that is exactly what happens. For instance did you know that if you bought enough shares in the one company eg. Coke or IBM then you would actually own the company. Now this is never ever going to happen for a number of reasons but I tell you this to explain the concept that buying a share is literally buying a little piece of a company. People often ask me how to buy stocks and is it hard. In this day and age it is an incredibly easy process that takes a matter of seconds. Once you know the stock market basics and have set up an online account there really is nothing to it.
Ok so now you want to know how does the stock market work to make people rich. This is where things get a little bit more complicated because there are so many different ways that investors use shares to make profits. In fact for many investors it doesn’t even matter which way the stock prices move – up or down. They will use stock market news & stock trading software to still make a profit. In many cases they can make a bigger profit when the market is falling.
So to truly answer the question know how does the stock market work to make people rich I think you need to start learning about some of the exact strategies that investors are using. For instance ‘Buy and Hold’ is the most common strategy used by most mum and dad investors. To be honest it isn’t really a strategy, in fact I’ve heard people describe it as ‘Buy and Hope’ which is probably a better description. Many people sell ‘Covered Calls’ (sometimes know as share renting). This is a very good strategy that normal people have used with great success. You can use CFD’s or options to create leverage but these are definitely no stock market for dummies strategies.
With all of these strategies the same principle applies. You buy something when it is cheap and you sell it for a profit. I know that sounds very simple but it is the truth. As with all investing the idea is to make money and the only way you are going to do that is buy buying something that is going to appreciate in value. The next step in you learning about how does the stock market work would be to try and find a stock market for beginners book or to do a stock market course. There are hundreds of stock market courses out there that will teach you all about the different strategies to use. The most important thing to remember is to get a good education about shares and the stock market before you start investing your own hard earned money. Remember what Warren Buffet said “The stock market is simply the transfer of wealth from the impatient to the patient”. So make sure you are patient and truly understand how the stock exchange works before you start transferring your money to the patient.
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