What are Common Stocks

When you a buy a share of common stock, you are buying a share in a company with the expectation that the company does well and increases in value.  You may hear the the term Dow Jones, S&P, and Nasdaq; these are all indices which attempt to provide a broad overview of the entire stock market.  These companies create their own basket of stocks to follow the market. 

History has shown us that over the long haul, stocks provide the best rate of return.  Over a short period of time, you may be able to find other asset classes that can outperform stocks.  There are a few different techniques in analyzing stocks.  The most popular technique is referred to as fundamental analysis.  Fundamental analysis looks that the companies earnings, revenues, assets, and other tangible company metrics which give insight into the future of a company.  Another technique used by many shorter term traders is known as technical analysis.  This method of analyzing stocks looks at the price of a stock and attempts to uncover trends through price action which gives insight into human psychology.  The theory with technical analysis is that certain pattern attempt to repeat themselves over and over again.  Technical analysts attempt to uncover these patterns and profit off of them. 

Finally, the random walk theory is discussed as the third technique for analysis.  Random walk believes that the market is ultimate gauge for determining the appropriate price of a stock.  Any market analysis is irrelevant according to this technique.  They believe that no one can predict the future price of the stock; and hence, you will see monkeys throwing darts at a board to pick stocks.  They believe it is random in its nature.