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How to Invest in the Stock Market: Beginners Guide 2020

I know you want to invest in the stock market, but then, you don’t understand how the stock market works.

You see yourself asking random questions like:

  • How to invest in stock market
  • What are stocks
  • What are ETFs
  • Stocks market opens when

And not finding a simplified answers to all these questions kills your interests to investing in stock.

You are not alone.

How to Invest in the Stock Market: Beginners Guide 2020

The stock market can be a confusing place sometimes but you don’t have to be a genius to figure it out.

Anyone can and that why warren buffet said.

Success in investing is not a matter of IQ what you need is the temperament to control the urges that get other people into trouble when investing.

Warren Buffet

Before we go into what stock Market is, here is what stock market isn’t.

  • The stock market is not a lottery and stocks are not lottery tickets
  • The stock market is the best pathway to building long term wealth. It is not instant.
  • The stock market is not a guaranteed money-losing venture.
  • There are risks involved, yes, but there are substantially more opportunities for great rewards.

These are the most important terms you need to know

What is the Stock Market

The stock market is in fact a market. In the stock market, you buy and sell pieces of publicly-traded companies.

These pieces are called stocks or shares.

You can also purchase Exchange Traded Funds (ETFs) on stock exchanges.

What is Exchange Traded Funds (ETFs)

An Exchange Traded Fund (ETF) is a collection of assets that you can buy into.

Since an ETF holds different assets, it gives an investor the benefits of diversity and the opportunity for returns, at a significantly cheaper rate.

A Stock Exchange

A stock exchange, sometimes called a securities exchange, is a physical location where investors can buy and sell shares, bonds, and other financial instruments.

In the U.S., the New York Stock Exchange (NYSE) and the Nasdaq are the two biggest stock exchanges.

A Stock Index

Stock index
Stock Index

This is used to track the performance of a group of stocks.

Stock market indexes like the Dow Jones Industrial Average (DIJA) and the Standard & Poor’s 500 Index (S&P 500) are often used as proxies for the overall market – that is, they are used to track the performance of the overall market.

So, when you hear statements like “the market is up” they are usually referring to a stock index like the S&P 500 or the Dow.

An Initial Public Offering (IPO)

This is the process by which a company sells its shares on the stock market for the First time.

How to Invest in Stock Market

It is normal for a novice to feel nervous about trading in the stock markets.

But the truth is that, it is not as hard as you think.

It just that mentality that has been on you for long thinking the stock market are meant only for the High class.

It just so fucking hard.

That is a wrong perception.

As the world keeps advancing everything keeps moving, and it has come to the extent whereby someone in Nigeria can invest in certain U.S stock with just an Android phones.

You can check on How Nigerian are now able to buy Apple stocks, Facebook, and others with the Invest Bamboo app.

With that knowledge, it is clear that the stock market is not different from the other markets you do go and buy foodstuffs

As far as the buyer and seller have agreed on a price term, the place they meet to conduct the transaction can be referred to as a stock market.

So in essence the stock market is a place where companies put out their shares for investors to trade for.

And they are only two outcome that occurs in a trade:

  • A profit and
  • Loss

This is mostly due to the price index of the company shares, it goes up and comes down

Now would you like to know why stock prices goes up and down.

Why does Stock Price go Up and Down?

Let assume you went to the market to buy Flour for N150 per bag and then an upper week you went to buy some flour but it was now sold to you for N170 instead of the former price you bought it.

What made the price increase? That same logic is the same in the stock market.

There are a lot of reasons why stock prices fluctuate. The underlying reason, however, is the principle of supply and demand.

The stock price of Apple, for instance, will climb high when there are more buyers than sellers.

In reverse, the price will fall when there are more investors selling than there are buying.

Media coverage, opinions of analysts & well-known investors, political and social issues, economic conditions are all reasons that cause investors to buy or sell stocks which in turn affects the stock price.

When to Buy / Sell Shares

When is the right time to buy a share or sell? This is where Trading strategies come In.

For instance, a long term Investor may just decide to buy and hold a lot of stock and wait for long term increment before selling.

Whereas a Day trader is on alert for a Dip, to buy and then sell at the slightest increase for-profit and then rinse and repeat the strategy.

We all know the primary trading strategy is to Buy low and sell high.

A businessman is someone who buys at ten and happy to sell at twelve.

The other kind of man buys at ten, sees it rise eighteen and does nothing.

He is waiting for it to rise to twenty, and when it drops to two he is waiting for it to get back to ten.

Important Stocks Terms and Meaning

Bear

One who believes prices will move lower. The term is derived from the manner in which a bear fights, which is to rear onto its hind legs and strike down with its front paws.

Bull

One who expects prices to rise. The term is derived from the manner in which a bullfight, which is to lower its’ head and thrust up with its’ horns.

Candlestick Charts

A charting method, developed in Japan, that visually shows the relationship between the opening and the closing share price.

The price range between the open and close is plotted as a rectangle. If the close is above the open, the body of the rectangle is white.

If the close of the day is below the open, the body of the rectangle is black. The lines from the high and low, to the rectangle, are called ‘shadows’ or ‘tails’.

Day Order

An order that is placed for execution during only one trading session. If the order cannot be executed that day, it is automatically canceled.

Day Trading

The practice of buying and selling shares or derivatives within one day’s trading. The day is ended with no established position in the market.

Earnings Per Share (EPS)

A company’s total earnings divided by the number of shares outstanding; a measure of a company’s performance.

Exchange Rate

The rate at which a currency may be converted to another currency. A floating exchange rate means that a currency is exposed to fluctuations in market forces rather than having a fixed value set by the government.

Financial Times Stock Exchange (FTSE)

The FTSE is a market capitalization-weighted index of 100 stocks and the United Kingdom equivalent of the US S&P 500 Index and the Australian S&P/ASX 20

Index Fund

A passively managed portfolio of securities that tries to mirror the performance of a nominated market index, eg. an equity index fund may be designed to track the S&P/ASX 200.

Trading decisions of such funds are generally automatic and infrequent so expenses tend to be lower than those of actively managed funds.

Intrinsic Value

The actual monetary value of a security, as opposed to its market price or book value.

Also, the amount by which an option exercise price is in the money, calculated by taking the difference between the strike price and the current market price of the underlying security.

Leveraged Buy-out (LBO)

The complete takeover of, or gaining a controlling interest in, a company using a significant amount of borrowed funds and where the target company’s equity value or potential cash flow is expected to be enough for a profit to be made for shareholders.

Last Trading Day

The final day during which trading may take place in a particular futures contract or option contract, after which it must be settled by delivery of the underlying security or cash settlement.

Liquid Assets

Assets held as cash or which are easily convertible to cash, such as bank bills.

Liquid Market

A market with a large number of buyers and sellers where trading can be accomplished with ease.

Limit Order

An order to buy or sell at a fixed price. A person can also place a limit order ‘with discretion’. This enables the broker to buy or sell within a small range of prices.

Margin Call

Unfavorable movements in securities purchased on credit will result in a demand by a broker to an investor to put up money due to this decline in value.

The exchange or clearing house calculates margins daily and requires the prompt lodgement of sufficient collateral to maintain the required margin level and cover potential losses.

Market-on-close

A stock or options market order to buy or sell a security that is to be executed at the current market price as close as possible to the end of that day’s trading.

Open Order

An order to buy or sell securities that have not been executed and which remains effective until it is executed, canceled, or changed to a different price.

Split

An increase in the number of outstanding shares in a company, with the market price dropping proportionately.

An example would be a four for one split of a $40 share into four times as many shares each valued at $10.

The usual purpose of a split is to make a stock with a high per-share price more accessible to smaller investors.

Market Order

An order to buy or sell a security at the present market price. As long as there is a market for this security, the order will be filled. This type of order takes precedence over all other orders.

Conclusion

Investing in the stock market is one of the most effective ways to build long-term wealth when it is done right.

With the right mindset and good knowledge, an investor can make great gains from the stock market.

Remember the Warren Buffet quote we started out with?

Success in investing is not a matter of IQ … what you need is the temperament to control the urges that get other people into trouble when investing.

Warren Buffet

For a more comprehensive dive into this topic, click this link to read the full article on How to invest in the stock market with Bamboo.

Want information to help you make smart investment decisions? Drop a comment below.

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