People spend a lifetime learning about stocks and the markets in which stocks are traded. You can gain a basic understanding of what stock is and how it is traded in a matter of minutes, but like chess, the number of intricate possible moves, the buying and selling of these shares, makes every investor's results different.
Stocks Represent Ownership in a Company
When you purchase stock, you are buying into a company. The performance of the underlying company is what is supposed to give the stock its value. Irrational speculation in stock can and does happen all the time and can be dangerous for investors who blindly follow other investors without rationalizing their investments.
Stock Values Fluctuate
It is a given that stock values fluctuate. These fluctuations are reported instantly and the trading history becomes an important statistical fact about the stock. Often fluctuation is based on news from the company, sometimes from external sources reporting on the company, and sometimes from general market conditions. It is the fluctuation in value of the stock that makes it attractive to investors.
Stock Values Can be Unpredictable
Investors do not always act predictably when it comes to news about a company. General market conditions can weigh heavily on a stock's performance as can industry news. Rumors can make investors treat a stock irrationally, and on rare occasion, even technical glitches have been known to affect the price of a stock.
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Investing in Stocks for the Long-term is Best for the Average Person
Although many investors speculate with short term investment strategies, the average investor is better off investing in a well-balanced stock portfolio geared for long-term goals. The truth is, when you purchase a stock, you can never know what the outcome of your investment will be. It is only when you have sold a stock that you realize a profit or loss. Time gives you the opportunity to average more gains than losses.
An Investment Should Fit Your Objectives
A well-balanced investment portfolio is designed to spread risk and meet investment objectives. Reacting to rumors and speculative opportunities can draw you away from long-term plans and create losses. Likewise, an unbalanced portfolio can undermine the basic goal that you have established, such as growth or income.