Some Tips for Learning About the Stock Market

Investing in the stock market can be a smart move, but it pays to understand how the market works before you jump in. Stock prices can rise sharply in the span of only a few hours, and fall just as sharply a short time later. If you are unprepared for this level of volatility, you could panic out at the bottom and end up losing a significant amount of money. Taking the time to track the market on paper and learn investing terminology will better prepare you for the world of stock investing.

It helps to have the right information at your disposal before you get started. Buy a quality financial publication like the Wall Street Journal or Investors Business Daily and read the stock charts carefully. You can also use the stock charts in your local newspaper, but they might not be as detailed or include as much information as the tables in a newspaper geared specifically toward finance. For instance, many local papers do not include the 52 week high and low in their stock tables.

Choose Your Stocks

Create a list of stocks you want to track on paper. Creating a paper portfolio serves a number of different purposes. For one thing, it helps you gauge your stock picking ability. For another, it allows you to experience the volatility of the stock market and see how news events move stock prices, all without putting any real money at risk. You can choose any stocks you like, including companies whose products you use every day, or even the company you work for.

Look up the ticker symbol of the stocks you wish to track. Stock tables list companies alphabetically by ticker symbol, not by name. You can look up the ticker symbols of your chosen companies at financial websites like CNN Money and Yahoo! Finance.

Circle each of your chosen stocks in the stock tables. This makes it easier to gather information and make sense of the data reported for each stock.

Read the Stock Tables Carefully
Look up the last closing price of the stock. This is the last price the stock traded at before the market closed for the day. The stock table might also list the high and low for the day, giving you an idea of how volatile the stock was in the short term.

Find the 52 week high and low for the stock. The 52 week high and low is a good measure of the long term volatility of the stock. A company with a large spread between its high and low has been very volatile in the past, and might be just as volatile in the future.

Locate the earnings per share for each stock you are tracking. This is listed as EPS in the stock tables. If this column is blank or contains an N/A, the company is currently operating at a loss. You might also see a column labeled P/E. This is the price earnings multiple, which is simply the current price of the stock divided by the earnings per share. The P/E is blank or shows an N/A for stocks with no earnings.

Check the dividend yield for each stock on your list. The dividend is listed as DIV in the stock table, and the dividend yield is displayed as DIV YLD or DIV %. You can calculate the dividend yourself by dividing the price of the stock by the annual dividend yield. If the dividend fields are blank or show N/A the company does not pay a dividend. Not all companies pay dividends to their shareholders.

Develop a Paper Portfolio
Create a spreadsheet to track the stocks you have chosen. Enter the name and ticker symbol of each company on a separate line, and enter the daily or weekly price of the stock in each subsequent column. This will give you a good idea of how volatile the stocks are, and how good you are at choosing stocks that go up in value.

Using your paper portfolio to practice in the stock market is a good way to get your feet wet, financially speaking. You can practice all you want, and learn all you need to know, without putting a single penny of your hard earned money at risk.

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