Understanding the Stock Market: Is Now the Time to Invest?

Understanding what the stock market is and how it works is a very confusing concept, but it doesn’t have to be. The New York Stock Exchange was founded in 1792 by several investors. The New York Stock Exchange allowed ordinary people to own parts of a company through buying shares, making the “American Dream” of becoming a business owner a reality. When a person bought a share of a company they did so because they thought the company had value and were proud to own even a .000001% of a company. As years progressed, people became wealthy in the stock market as the economy began to grow (mainly because of international wars).The growing economy pushed investors to put their retirement in most commonly investment vehicles called an IRA’s or 401k’s, doing so almost guaranteed for a healthy retirement. However, in 2000 people started using the stock market, particularly the New York Stock Exchange, as a tool to test how the current economy was progressing or digressing.

Now here we are in 2011, where computers basically control the stock market. For instance, the past week was extremely volatile in the stock market, but why? I do not think the stock market ups and downs has anything to do with personal perception of the economy,  rather what investors think of the stock market based on mathematical assumptions. Investors need to go back to the thought of pride of ownership in a company and not what CNN or Fox News may say. When investors think a dip in the stock market is going to occur they tell computers to automatically sell at a certain price. So let’s say Ford Motors (NYSE: F) stock is currently trading at 12:00pm for around $10 per share and by 1:30pm the stock is now selling for $9.50 per share, the investors may have set a sell price of $9.50 so now the computers will sell the shares and cause the stock price to go down even further which could in return make other investors sell prices trigger.  THE RESULT = A HUGE DECLINE!! The huge declines that we saw the last year are not a projection of how the USA economy is doing, rather that the computer equations and hedge fund managers are looking to a quick buck!

Basically, the stock market is a great way to grow your portfolio but choose stocks carefully and plan to hold onto them for the long-run. Be proud of the companies you own through shares because even if you own one share of a company you are still a business owner!!!

What do you think about the New York Stock Exchange (and the international stock markets)? Have you changed your investment strategy based on the recent volatile stock market?