Investing 101: Choosing Stocks

What are Stocks?

• Stocks are partial shares of ownership in a company, allowing investors to buy a share in the company's success or failure.
• A stock's price is determined by the number of buyers and sellers trading it, with the market price representing what buyers and sellers believe the stock is worth.

Investment Goals

• Investors aim to make money by purchasing stocks whose value will increase over time.
• Some investors aim to grow their money at a faster rate than inflation diminishes its value.
• Others strive to "beat the market," growing their money at a faster rate than the cumulative performance of all companies' stocks.

Beating the Market

• The phrase "beating the market" refers to earning a return on an investment that exceeds the Standard & Poor 500 index.
• The S&P 500 is a measure of the average performance of 500 of the largest companies in the United States, weighted by company valuation.
• The S&P 500 is a proxy for the overall market, but does not directly represent the market as a whole, with small and mid-range stocks fluctuating according to different patterns.

Market Behavior

• The stock market behaves like a voting machine in the short term, with short-term fluctuations in stock prices reflecting public opinion.
• In the long term, the stock market behaves like a weighing machine, with stock prices reflecting the company's true value.