The DJIA is down approximately 6,000 points today Oct. 10, 2008 compared to its peak of around 14,200 about one year ago. This translates into roughly a %43 drop in its value which translates into trillions of dollars being removed from the stock exchange. So, where did all that money go? Surely it didn’t disappear, it merely moved. Panicked investors (some rightfully so) have moved their money from the stock market to what they consider safer sources such as government bonds and money market accounts. Certainly, the latter has much less volatility, however, in moving their money these investors have sustained real losses and will likely never recover the losses had they simply left the money alone.

Let’s step back a minute to break this down for those people whom have no clue how the stock market works:

1. The stock market was created to help people raise capital to help build their businesses. So, when a company goes “public,” they are essentially selling non-management ownership in the company - a financial stake in the company in hopes the company will grow ever larger and make them money on their investments.
2. So, those companies use that money to build assets and generate income, the same way a small business owner who borrows from their mother or father would.
3. As it stood last year when the market was at its highest and bad news struck that some of these huge companies people had invested in were essentially overvalued, the sell off began. People start selling off stock and taking that money and putting it into savings or government bonds.
4. So, the money is still here, it has simply been moved, and eventually it will come back short of a complete US government collapse and end of the US dollar.

So, ask yourself this question - are you truly saving yourself money by pulling out from the stock market, or hurting yourself? Unless you were the first to pull your money when the going got bad, and you are able to be the first to put your money back into the stock market when it turns around - you will hurt yourself trying to time the markets. Furthermore, if the US stock Market were to completely collapse, the US government would likely collapse - and those government insured bonds and US dollars in savings would be worth only the cotton paper they are printed on. Be smart, don’t panic - irrational people make irrational choices - likely many are doing now. Those irrational people will be hurt when a rebound occurs as they will have taken real losses.

There are various methods you can use when you go online to buy stocks or shares in companies. The easiest way that I reccommend getting started is to contact one of the various online discounted brokerage firms. Be wary though, there are major differences in costs and service levels throughout the online stock purchasing industry. For more information on how to buy stock please check my site as I’ve built a ton of valuable information for you.

So, you want to know how to buy shares of stock of different companies and likely which shares to buy. See below for a great introduction to buy stock shares on your own.

“In business and finance, a share (also referred to as equity shares) of stock means a share of ownership in a corporation (company). In the plural, stocks is often used as a synonym for shares especially in the United States, but it is less commonly used that way outside of North America.[1]

In the United Kingdom, South Africa, and Australia, stock can also refer to completely different financial instruments such as government bonds or, less commonly, to all kinds of marketable securities.[2]”

Buying

There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange, such as the New York Stock Exchange.

There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker.

There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.

When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyer’s ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using the car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8-10% interest.

Selling

Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.

As with buying a stock, there is a transaction fee for the broker’s efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction.

After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.

So, you want to know how to buy stock, perhaps how to buy stock online? Great, you’ve found the spot on the web that can help you. It’s quite easy actually, you have a few options I’ll show you below:

Call a broker on the phone, setup an account and get started buying. If you need help first though, consider a financial planner to help you.

On the other hand, if you’ve got the itch and don’t want someones advice you could get started now by contacting a discounted brokerage firm that has online operations. There are so many out there it’s absurd, and the great thing about it - they are all competing to give you the very best. Consider starting with places like Tradeking (a sponsor of mine down on the left sidebar), or any other place like etrade, scottrade, charles schwabb, or multiple other companies.

The best and most respected investment companies of today are Vanguard, Fidelity, and American Funds.

Vanguard has been in a neck-and-neck race with American Funds for years, and in 2007 Vanguard edged out as the as the nation’s top-selling fund company. What makes it stand out above the rest is that it provides superior investment options, and is owned by its shareholders (meaning it is a not-for-profit company), so its expenses are very low. For example, the Vanguard Wellington plan, which is considered a near-perfect choice for retirement investment by financial advisors, places 65 percent of assets in big company stocks, 32 percent in high-quality, intermediate-term bonds (bonds that last 3.5 - 6 years and rotate among better-valued sectors in the bond market) and the remaining amount in cash – and the expense ratio is very, very small (only 0.27 percent). The Vanguard Primecap Core plan is also a top choice with a nice expense ratio of 0.55 percent. And the Vanguard REIT Index Fund allows 401k contributors to invest in real-estate investment trusts instead of stocks and only charges 0.2 percent in expenses – a plan that is highly recommended by advisors. Other things consumers seem to love with Vanguard are their low-cost EFTs (electronic funds transfers). However, one of the problems you’ll find with Vanguard is that many of their top performers are withheld from 401(k) plans.

While Vanguard is the top-selling fund company, Fidelity Investments has the largest network when it comes to distributing corporate 401k retirement plans. Many say that in comparison with Vanguard, Fidelity is the epitome of big business, but unfortunately is not as personable. So with this company, finding the right manager for your fund account can make or break your experience. A few of Fidelity’s top funds that make it, rank high among other companies are Magellan, Contrafund, and Emerging Markets. Magellan is loved because it is channeled to both foreign stocks and domestic juggernauts like Google. Contrafund, which is only available through employer retirement plans, is a favorite because it falls into the top five percent of large-growth mutual funds and has been there for well over a decade. And Fidelity Emerging Markets is ranked as one of the best due to its reasonable fees and because it has beaten 97 percent of its competition over the past three years. Between these three retirement funds, advisors feel that investors are definitely in good hands with Fidelity.

American Funds is another top choice in investment companies for retirement, and is the world’s largest fund company. If you’ve never heard of it, it is because it doesn’t advertise to individuals – only working with brokers and financial advisors. This company offers significantly fewer mutual funds than the competitors, keeping its stash in the dozens. But surprisingly, this has helped the company grow into a humongous company for retirement investing. In fact, American Funds has seven of the ten largest mutual funds, including Growth Fund of America, which is by far the largest fund in the world to date.

There are several other large companies like Edward Jones and Wells Fargo that are well-known in the investment world, but these three companies above know the business well, and thus are very likely to deliver the results you need.

All you have is $100 bucks or $1,000 bucks, maybe $10,000 grand. No problem, Sharebuilder.com can accomodate your measley investment of anything.

Or, try Tradeking (over in the right sidebar I have a clickable link), they have some spectacular deals going on right now (and they were rated the #1 discount broker by SmartMoney in 2007.)

This gives you no excuse to get started, instead of throwing that $20 spot on a bottle of rum that will leave you with a headache the next day, stick that loot into an account and get started! Be sure to read through my lessons though, so you don’t go in blindly and throw away all your money.

Keep in mind though, if you have generally more than $1,000 to invest, some of the other discounted brokers may have sweeter deals with regards to how many free trades and such you can make. It only makes sense to be diligent and look at multiple brokers to see who has the hot deal of the day.

First, what is a stock exchange or stock market you ask (also known as share markets)?  Basically, it is a company or organization that facilitates the buying and selling of stocks and other securites which is controlled by the US SEC.

 What are the different stock exchanges? According to the US securties and exchange commision:

A “national securities exchange” is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934.

There are currently ten securities exchanges registered with the SEC under Section 6(a) of the Exchange Act as
  national securities exchanges:

• American Stock Exchange
• Boston Stock Exchange
• Chicago Board Options Exchange
• Chicago Stock Exchange
• International Securities Exchange
• The Nasdaq Stock Market LLC
• National Stock Exchange (formerly the Cincinnati Stock Exchange)
• New York Stock Exchange
• NYSE Arca, Inc. (formerly the Pacific Exchange)
• Philadelphia Stock Exchange

Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures.

There are also two exchanges that the SEC has exempted from registration as national securities exchanges on the basis of a limited volume of transactions:

• Arizona Stock Exchange
• virt-x plc (formerly known as Tradepoint)

Now, why are there so many stock markets or exchanges ?  In essence, they track or trade different things in different ways, like in person or by electronic automaton. For example, the largest in the World is the NYSE. The DJIA or dow jones industrial average is an indicator and representative of the largest public companies financial health, also called your blue-chip companies. 

Interested in buying stocks but not sure what to do or how to buy them? After reading through my lessons you should have a good idea on what your objective, investment horizon (how long you plan on investing), and risk tolerance are, so you have a plan to get started. I’m assuming you’ve decided to either invest on your own as you’re not offered a 401k plan or you’ve maxed your IRA’s and such, so you want to try the share/stock market. Also, I’m assuming you’ve done your research and have conducted some kind of analysis on the companies you will be investing in. If you have done all of the above, then you’re probably more than ready.

So, how do you get started with this stock market? How can I buy shares in Apple, Microsoft, Google, or whatever your choice in stocks are- you’re asking? Well, here is what you need to do as shown below:

Find a good broker or brokerage firm. These are the guys with the necessary licenses to place orders for you on the stock exchange. Don’t have any idea what I’m talking about? Look at places such as:
Sharebuilder by ING, Etrade.com, Scottrade.com, Charles Schwab , TD Ameritrade ,

or any one of the other discounted brokerage firms like one of my sponsors on the lower right Tradeking - whom has some excellent deals going on right now (and if you use them I’d really appreciate you clicking thru my link when signing up) .

Not to mention, places like Fidelity do this too. They can help you get started online or over the phone.

A couple of things to keep in mind when selecting a broker:

Some are more costly than others with regards to buying and selling and offer the exact same service. Some are more costly because they offer more client services than others. Be sure to ask what you get with them and relate it to the cost, to know which is more cost effective for you and your investments. Watch out for hidden charges on things like transfers and handling, ask for a full fee disclosure.

In the previous lesson, I mentioned that there were two different methods that are currently being used to analyze stocks and such, fundamental and technical analysis. This lesson will focus a greater effort on taking a closer look at fundamental analysis.

Let’s say a distant friend of yours told you about XYZ company, and said you have to invest in these guys, they’ve been around for a while now - and their stock is about to explode- it’s the next Wal-Mart. Now, would your just take their word for it that company is a good buy? I surely wouldn’t. So, how would I go about determing if that stock is worth what it is being sold for, in terms of the current price and how it relates to their future ability to make me money?

As mentioned in the previous lesson, you have (if the company is already publicly traded) the ability to look at a companies’ financial position through looking at their financial statements. These financial statements, in general, consist of three major statements, the P&L or profit and loss statement (or income statement), the balance sheet, and the statement of cash flows. This sounds more complicated than it really is; The P&L has multiple names, but don’t let them confuse you. Here, you are only concerned with the revenue a company generates, and the money it costs the company to generate that revenue. Next, the Balance sheet, this is where you can analyze the companies’ assets and liabilities, or the money, investments and properties a company owns along with what money is still owed to other comapnies (as it will not show in expenses until it is paid). Lastly, the cash flow statement shows you how the company finances or pays for their daily operations. If a company has limited cash flows, they may have a difficult time paying their bills.

You can gauge their financial statements by using different ratios to determine if the company is valued correctly. We will discuss in further lessons the different types of financial ratios you can use to compare similar companies within an industry and or the company you are soley interested in.

There are multiple reasons why investing your money in the company that sign’s your paychecks is a horrible mistake. Too many people new to investing and their 401k’s dump in huge amounts of their monthly contributions into their company stock. In general, it’s a bad idea to have any more than 5-10% of your money tied up in the company you work for, and here are my top 5 reasons why:

5. You’re emotionally tied to your company; It is more than likely you will place irrational bets on its success as you want to see it succeed badly. Even more, you will probably hold onto the investments longer than you would have otherwise.

4. You’re loyalty to the company is not tied to how much of your money you invest in it. Your main priority should be diversification of your portfolio, not loyalty through investing your earnings with them.

3. Enron. Those people not only lost their job, but many of the people heavily invested in the company stock lost their entire retirements. Don’t think your company is immune to this type of fraud either. Many of you may be unaware of another recent collapse of a financial empire Bear Sterns, fraud played a role in their demise.

2. You probably think you know more about the business than you actually do. Just because you’ve worked there for 5, 10, 20, or even 40 years doesn’t mean you will see what is coming right around the corner, or even understand how outsiders view your company. Unless you are the CFO (Chief financial officer) or an accountant, you better stay away from this type of thinking and leave it to the professionals with deep pockets to toy with.

1. Your company may have restrictions on the money you invested with them. That’s right, they might just decide that you must hold onto their stock that is losing money. Now wouldn’t that suck? Watching your retirement fund deplete in front of your eyes, but your hands are tied because they won’t let you sell. Stay away from this to begin with, and you will never have this problem. Your other stocks and options will likely be much more liquid (easily convertible to cash).