Stocks are the bedrock of investing. Investing in the companies that drive the global economy can not only be financially rewarding, but personally gratifying, as well. There is pride in ownership, and when you invest in stocks, that’s exactly what you do: buy a piece of a company.
How to invest in stocks
Buying and trading stocks can be as easy as picking up the phone or logging in to your computer. With full-service financial firms and discount brokers, you can get as much, or as little, help as you want. You can research and choose the company stocks that you want to buy, or have professionals guide you in building a portfolio.
Stocks, also known as equities because you a buying an ownership share in a company, come in many “shapes” and sizes. Capitalization is the term to describe a company’s size, based on its stock price multiplied by the number of outstanding stock shares in the market. You’ll hear the terms small cap, mid cap and large cap stocks in reference to a company’s total value.
But stocks also are grouped by industry and style. Here are some examples:
Growth stocks refer to an investment style. These stocks are shares of companies that are experiencing rapid gains in profits. Investors look to past records of earnings as well as growth potential when seeking to buy shares in growth stocks. Many times these are relatively young companies developing new products or technologies.
Which leads us to technology stocks. We are all familiar with the names: Apple, Google, Microsoft, Intel and the rest. You know the story. Tech stocks have been the darlings – and the demons – of the stock market. From boom to bursting bubble, these stocks can offer exciting opportunities for investors who are up for a bumpy ride.
Blue chip stocks
Blue chip stocks are shares in companies thought to be of the highest quality, with strong balance sheets, dependable earnings and reliable dividends. Generally, Dow stocks are considered blue chip stocks. So, read on:
The most widely referenced benchmark of the stock market, the Dow Jones Industrial index, is made up of only 30 stocks. Created in 1896, Dow stocks today are far from exclusively “industrial” but include companies like McDonald’s, Visa, Wal-Mart and Walt Disney as well as 3M, Boeing and Caterpillar.
Of course, investing in stocks can mean buying shares in companies around the globe, but in the U.S. most investors think of the S&P 500. The Standard and Poor’s index of 500 stocks was first published in 1957 and represents 80% of the total American stock market. S&P stocks include Apple, Exxon Mobil, Google and Johnson & Johnson.
Traditionally defined as companies owning hard assets but with stock prices that are relatively cheap, value stocks these days are not necessarily the manufacturers and producers they once were. Value investing is the process of searching for good businesses that have gone out of favor in the market – hopefully temporarily.
These are the basics of how to invest in stocks. By conducting your own research and remaining vigilant, your stock knowledge and confidence should begin to grow.