I don’t know the first thing about what makes a good stock. It all seems like gambling, why should I even bother to learn?
Let’s make one thing clear from the start: predicting the future path of a stock price is nearly IMPOSSIBLE. Even the experts can’t do it all that well. Over the last 10 years, only 15% of all professional portfolio managers trading major US stocks outperformed the S&P 500, the price index of the top 500 largest US companies. Over 15 years, that falls to 8%. So even the people that consider themselves the best stock pickers, that are paid millions every year, can’t predict the stock market or even really beat the average. So don’t be intimidated that you can’t either. More deets.
The important message here: Predicting and understanding the stock market are two very different things. You don’t need to predict. We can help you understand.
Why don’t I need to know how to predict the stock market? Because you don’t need to be a stock trader. That’s awesome if you want to be, and we can hopefully give you a jumpstart. We just want you to understand how it works. This way you can understand what drives companies to make decisions – on hiring, on product development, on social issues, on environmental issues, everything.
Stock prices are not some score in a gambling game. A stock represents a slice of the value pie of a company. When you buy one share, you own a piece of the company, and you take part in the growth of its value. The more value a company creates – more products, more revenue, more profit – the more valuable a company becomes. As with anything in the world, value is in the eye of the beholder. That’s why the stock market moves. Some people think this company is more valuable (higher price) than it’s getting credit for (current price), and some people think it’s worth less (lower price). A piece of news comes out, and a company’s value might go up, might go down. Mergers and acquisitions – one company buying another because they think they’ll be more valuable if they absorb their research department or their distribution network. If you think US companies are going to continue to grow in value over time, then you might as well grab a piece now and hang on.
And now you’ve got it. Everything else flows from there.