Stock Market for Beginners

Learn The Stock Market Lesson - How Coupons And Sales Relate to Trading

Coupons. A penny saved is a penny earned. Do not feel embarrassed about using a coupon that is only fifty cents discounted off the original price. This saving can contribute to paying off some of your ridiculous transaction commissions that our online trading broker website robs from us (E-Trade, Scott-Trade, etc.). Eight dollars for a transaction just to buy some stocks and another eight just to sell them? That’s absurd, especially if you haven’t made any profit from the stock. These commissions do contribute to losses and minimizes our profits! So every penny saved helps.

But watch out for those coupons. They can be evil sometimes. In a sense, coupons lure you in to buy the items that you might not need at all. This again relates to trading: don’t buy a stock simply because it looks good, without appropriately studying the stock or having a reasonable trading method. Just like how you shouldn’t use the coupon because the item is at a cheaper price, you should not buy a stock simply because it is cheap. For example: penny stocks. Most of us can afford to buy a couple of penny stocks but why do we not? There is a very high risk to them and therefore, we cannot associate buying something only because they’re cheap. Cheap prices are attractive but sometimes we need to control our desires if we still want to have some decent amount of money in our bank.

Also, just because an item has dropped in price (perhaps due to the coupon or a sale), which makes it cheaper than it initially was, does not mean that you should buy it. Many of us do so because we believe that the price of the item will go back up so we tend to take advantage of sales and coupons, even for those items that we do not need. However, we have to be careful to not use the same method when it comes to trading! It is so easy to get attracted to cheap, fallen prices but remember: We cannot buy a stock just because it has dropped in price, thinking foolishly that the stock “has” to go back up with no apparent reason other than that it “has” to! That would be speculation. What comes up most often comes down at times, but what comes down…unfortunately does not always come back up all the time (as you can probably tell from all our bankrupt companies). Therefore, we cannot assume that the stock price will go up. The stock market has no guarantees: the stock can keep going down and disappear…and so can your investments.

I agree that the idea of buying a large block of $1, $2, or $5 stock and watching it double is exciting. The only problem is that your odds of winning the lottery may be better. Here’s the fact: investing in stocks is not the same thing as buying a car or a shirt on sale. Cheap stocks involve far greater risk. A historical fact is that of best-performing stocks in the last 45 years, the average per share price before it doubled or tripled was $28 a share.

Given this comparison between coupons, sales, and trading, I hope you do not let prices and its mere appearance (without studying, perhaps, fundamental analysis or technical analysis) affect your decision whether or not to buy a stock. Think before you act.