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Demystifying Investment Lingo – How to Buy Stocks

Book: How to Buy Stocks

Author: Louis C. Engel and Henry R. Hecht

Genre: Personal Finance

The first edition of this book was printed in May 1953; this classic book is now in its eighth edition; a text consistently revised for the modern reader. And it should be amongst the first titles the new investor reads on his path to making sound investment decisions. This book offers a ground-level explanation to all the terminology the novice investor may find overwhelming. The authors’ do not promise to make you a fortune but rather give you the tools to teach yourself how to make your money earn even more money with appropriate investment.

The value of this book for beginners is that it explains the main different investment options and what to expect when you put your money in them.

The world has many stock exchanges, not just the New York Stock Exchange, which most people consider the globe’s major one. Securities can be bought and sold on these multiple international exchanges using many different strategies. These do not set the price of stocks, and they don’t buy or sell stocks themselves; they are merely one of the many marketplaces where it all happens.

Technology over the years has changed the process of buying and selling of buying and selling stocks, but the principles remain the same. All buy or sell orders undergo the same public auction process, this ensures that the buyer and seller receive the best price possible. How you invest your money depends on the type of risk taker you want to be, and the type of investment you want to undertake.

Stocks

For the moderate risk taker, buying stocks in a business essentially turns you into a part owner of that company. The price of that stock, how much it is worth, is calculated by how much someone else is willing to pay for it. Anyone who buys shares has the same goal in mind, to sell their securities (eventually) at a higher price than what they paid for them.

Bonds

Bonds are essentially large IOU’s issued by a company or government (local and otherwise) to fund work or projects. A loan that must be paid back at face value within a certain time frame, and they pay you a set interest rate at regular intervals until the bond matures. The higher the bond interest rate, the higher the risk, but Engel and Hecht believe that investing in your government maybe the safest bet of all.

Investment Banking

Businesses use investment bankers to help them find capital for their companies as they implement long-term plans. Investment banks are the link between large organizations and investors and work on behalf of the company to—after careful research and consideration of the current investment climate at the time—sell an ownership stake in stocks or issue bonds and borrow the capital at a set price per share to individual buyers.

Venture Capitalism

Although a type of speculator—an investor that takes significant risks based on the potential for large returns— these guys tend to fund new, start-up businesses. Companies that need to grow fast and make profits to be able to return the initial investments. For the investor to make money, they need to sell their share at a higher price then when they entered into the investment. A risky path to take.

The authors’ do point out that there is no quick or set formula to the investment process. They merely guide you to use strategies, such as; selecting the appropriate securities on your own and mixing those with packaged investments like mutual funds. The book breaks down and explains all the difficult and complex investment terms out there. Reading this text and becoming more informed on the subject, will help you define the type of investor you are going to be. Hopefully, a successful one.


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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.