Understanding the Stock Market

Forbes Special Situation Survey Newsletter
The Prudent Speculator Newsletter
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The Prime Directive... THE MOTIVE IS MONEY

The fact is that you can't help mankind, end global warming, save the polar bear, or purchase your first Galaxy Class Stratojet without prodigious amounts of the green stuff. Just ask J.P. Morgan, if you can find him.

The stock market, at its simplest, works on supply and demand. If the Carbon Credit Company is selling lots of carbon credits, then their stock asking price will be high. If, on the other hand, their product is proven bogus, the stock price will drop. Nothing more complicated than that.

The measure of your success in being a fearless stock market investor is something called the Rate of Return. It's the amount of money you make for your investment in a stock. When you calculate that the rate of return is more than the asking price, and the dangers and risk associated with the investment, then you purchase that stock. Stock market investors are in the business of calculating risk and investing in stocks at the right time...and likewise divesting at the right time.

The coin of the stock realm is called a share of stock. Simply put, once you own a share of stock, you also own a piece of the company. Whether or not you get to use the VIP room at the stockholder's meeting depends on the amount of stock issued by the company. If the company issued only two shares, then you, in effect, own half the company. That would pretty much guarantee you a front row seat.

Stocks can also be categorized into two depending on the rights and responsibilities attached to it - common and preferred. It must be emphasized that common stocks are the shares traded in the stock market while preferred shares are usually held are long-term investments.

Stocks are usually bought and sold via a stock exchange. Popular stock exchanges include he NYSE, NASDAQ, and AMEX. Also, there are a couple of other stock trading venues, namely Pink Sheets and the OTCBB, which specialize in what's called penny stocks. Penny stocks are by their nature cheaper than most regular stocks. They are cheaper, but, interestingly enough, can net you a lot of money quickly....or lose a lot of money quickly. Typically, mainline money investors are the main users of penny stocks. As strange as it may seem, penny stocks are not for amateurs.

Stock exchanges are the home domain of stock brokers. Stockbrokers serve as the middlemen between the buyers and sellers. Stock exchanges are noisy and extremely frenetic, as masses of stock brokers as one, scream for attention as they buy and sell shares.

Then came the internet. Previous to online trading, one had but to pick up the phone and yell buy or sell into it. Besides screaming for attention at the stock exchange, the job of the broker was (and still is, if you want) to keep their client out of trouble, and make suggestions for them to get rich quick.
Nowadays, stock traders can sit around in their undies, keeping one eye on the cartoons, and the other on their computer screen and make their own trades, thus cutting out the stock broker all together. This has good and bad points.

The good part about sitting around your house in your skivvies making trades is that you get to sit around the house in your skivvies making trades. Unfortunately, though, to do so for any length of time means that you'll have to educate yourself in the stock trading ways. No small task, if you're a serious investor. Of course, you could also lay around the house all day in your Fruit of the Looms, letting your stock broker take care of business and call him every once in awhile to see if you're rich or broke. That's the way they used to do it. But you are might computer man, fearless and wanting to be in charge of your investments. Win. Lose. or Draw. So, get educated before you get in the game. Become the man of your dreams, a master of lesser men, and one to whom the price of a triple burger means absolutely nothing. Master the stock market, and laugh at life's little trivialities.

Of course, there are two ways you can do your part to do your utmost to insure stock happiness and that is to invest in The Prudent Speculator, a Forbes Publication, and the Forbes Special Situation Survey. As investments go, this is pretty much a no brainer. Buy at a low cost, and reap HIGH rewards!