Chapter 1: Introduction to Investing
Investing is in most cases defined as:
“put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit”
This means, "Put your money into financial plans, stocks, real estate, or a business project with the goal of making a profit."
This is the simplest way to understand what investing is and what it involves.
What is the stock market
In our case, we are mostly interested in the stocks part of investing. But what drives the stock market and how does it work? Well, you can think of it like this: you buy and sell parts of a company.
You always sell to other people, hedge funds, investment companies, or anyone who has access to the stock market. Remember, you always need an actual person to buy your shares when you sell and to sell shares when you buy. This isn't usually noticeable with most stocks because there are so many buyers and sellers that transactions happen instantly. However, it's still good to understand this process.
Always think of investing like this: you own a part of a company. It might be a small part, but it's still ownership in a real business. No matter how much brokers (the apps and websites that sell stocks) try to gamify investing, don't fall for it.
Stock valutions
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Supply and demand are fundamental concepts in economics that influence the price of goods and services. Supply refers to how much of a product or service is available for sale, while demand refers to how much of a product or service people want to buy.
The Law of Supply states that when the supply of a product increases, and all other factors remain the same, the price of the product tends to decrease. For example, if there is a bumper crop of apples, the price of apples will likely drop because there are more apples available than people want to buy.
The Law of Demand explains that when the demand for a product increases, and all other factors remain the same, the price of the product tends to increase. For instance, if a new smartphone is released and everyone wants to buy it, the price of the smartphone will likely go up because there are more people wanting to buy it than there are phones available.
Equilibrium is the point where the supply of a product equals the demand for that product. At this point, the price of the product is stable. For example, if 100 people want to buy apples and there are exactly 100 apples available, the price of apples will remain steady.
In the real world, these principles apply to various markets, including the stock market. Stock prices fluctuate based on supply and demand. If many people want to buy a particular stock (high demand) but the amount of shares available has not changed (low supply), the price of the stock will go up. Conversely, if many people want to sell a stock (high supply) but few want to buy it (low demand), the price will go down.
How do you earn money from stocks
There are two main ways to earn money from the stock market
Going long, or being bullish in the stock market, means buying stocks with the expectation that their prices will rise, allowing you to sell them at a profit. Essentially, you invest in a stock anticipating that its value will increase over time.
Long/Bull
Demonstration
Going short, or being bearish in the stock market, involves borrowing stocks and selling them with the expectation that their prices will fall. You then buy back the stocks at a lower price to return them, keeping the difference as profit.