Chapter 1: What the Stock Market
is All About
In any business or moneymaking venture, preparation and
foreknowledge are the keys to success. Without this sort of
insight, the attempt to make a profitable financial decision
can only end in disaster and failure, regardless of your level
of motivation and determination or the amount of money
you plan to invest.
In the stock market, this rule applies to the nth degree, as
you are investing your own money in what could be
considered a high risk wager, and you are playing with fire if
you do not have at least a general background knowledge of
how it functions. Since having a background in any area is
helpful in guiding you down a path in that particular region,
the more solid your basis of investment knowledge is, the
more likely you are to profit from any attempt to trade on
the open market.
In many ways, trading on the stock market can be
compared to driving you do not have to be an expert to
get behind the wheel of a car, though you are expected to
have some previous knowledge about basic traffic laws,
including moving violations, safety regulations, and other
legal vehicular infractions, which are learned through either
specific study and coursework or even through some form of
5
simple exposure (such as the years you have spent riding
with your parents and others who have driven for years).
You should be able to comprehend the basic tools used to
navigate a car (where the break pedal is located versus the
gas, and how to use the rearview mirror, for example), even
if you have never touched a steering wheel.
The same is true in entering the world of the stock market.
While you do not have to know all the terminology (you will
not be short selling or determining your own long and short
positions at first, so you do not have to understand these
references completely, though you should be aware of
them), you should certainly be versed in the basic
functionality of trading stocks, bonds, securities, and other
commodities. And just like someone who is behind the
wheel of a car and getting ready to touch the gas pedal for
the first time, you should start out with caution and work
your way in slowly. A first time driver will first set the
mirrors to his or her own liking, then put the car in gear,
look for any interfering traffic, and ease onto the gas pedal,
never flooring it and testing the engine coming out of the
gate on the first attempt. Likewise, when you select your
first investment, you should choose something stable with
little fluctuation and not invest a large sum of money on this
first venture.