A starter’s guide to the stock market

A stock market is a place where billions, maybe even trillions of dollars are moved around. They are the very foundations of our economies and it is how companies stay in business. Stripped down to its basics, a stock exchange or market is a place where shares or stocks of a company are dealt. These stocks entitle the owner to a small stake in the company. Each big conglomerate has hundreds of millions of shares all over the world and the trade of the stock is what keeps things moving around for the company.

The very reason people dive into the stock market is to earn some money and make it a second source of income, or if they are proficient at it, then turn it into their main job. This sounds easy to say and in theory, but stepping into the stock market without any knowledge would be a very risky move, to say the least.

When you enter with your money as an investor or have come to trade on somebody else’s behalf as a trader, you always come in with the main objective of earning money and not losing it. The exact nature of the working of the stock market is almost impossible to predict, as the number of variables that are moving around is quite simply too many.

So, the most obvious thing you could look at is the company’s profit and loss statement and then make your decision on if investing in that particular company is a bright idea or not. The investment also does not pertain to just a single company as that way you would be only relying on the performance of just one company. Instead, the best way forward would be to invest in many companies and as the economists like to call it, diversify the investment.

Before you dive headfirst into stock markets, you should learn a few terms. In this guide, we address two terms which will help you understand the market a little bit better.

  • Earnings per share: the total earnings which remain for shareholders divided by the number of shares outstanding gives you the earnings per share. This term EPS is different for each company as they will have a different number of shares available to the public and their earnings will also differ. EPS makes it easy to track the profit loss margin for each company, in the most accurate manner possible.
  • Earnings season: When tracking the EPS, you need to know about earnings and be aware of when companies release their reports. Each fiscal year is split into four parts called earnings season. Companies are required by law to publish their performance reports. Before each release, analysts estimate what the consensus earnings estimate might be if the number falls below it is called a disappointment and surprise if the earnings cross the estimate.
  • Earnings calendar: All of these are grouped together on a sheet called the Earnings calendar. This sheet can be found online and also details various other metrics and data points. With the help of this you can keep a track of all the data you will need when investing.

With a little bit of effort and some good strategy, you can easily find success in the stock market.