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Stock investing became all the rage during the late 1990s. Even tennis stars and punk rockers got into the act. Investors watched their stock portfolios and stock mutual funds skyrocket as the stock market was reaching the mania stage at the tail-end of an 18-year upswing (or bull market) in
stocks.
Investment activity in the United States is a great example of the popularity that stocks experienced during that time period. By 1999, over half of U.S. households became participants in the stock market. Yet millions lost money when the stock market fell big time during 2000–2002.
People invested. Yet they really didn’t know exactly what they were investing in. If they had a rudimentary understanding of what stock really is, perhaps they could have avoided some expensive mistakes. Before you invest your first dollar, you need to understand
the basics of stock investing.
The basics are so basic that few people are doing them. Perhaps the most basic (and therefore most important) thing to grasp is the risk you face whenever you do anything (like putting your hard-earned money in an investment like a stock). When you lose track of the basics, you lose track of why you invested to begin with.
When the late comedian Henny Youngman was asked “How is your wife?” he responded “Compared to what?” This applies to stocks. When you are asked “how is your stock?” you can very well respond that it’s doing well especially when compared to an acceptable “yardstick” such as a stock index (such as
the S&P 500).
The bottom line is that the first thing you do in stock investing is not send your money to a brokerage account and immediately buy stocks.
The first thing you do is find out as much as you can about what stocks are and how to use them to achieve your wealth-building goals. - Paul Mladjenovic
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