How stocks work? Stock for beginners

Which stock is the best?

Stock for beginners – There are a lot of shares. The number of stock tips and stock recommendations you see all the time on the Internet is also very high. They all want to know which stock is cheap and undervalued right now. So whose price will go up a lot in the near future. But it’s hard, and sometimes even impossible, to tell how the price of a single share will change in the future. In this part, we’ll tell you why.

At first, it can be hard for stock marketers to understand how new economic data are used on the stock exchange. For example, a company announces a record profit, and the price of its shares goes down. When another company says it has lost money, investors rush to buy its shares. Even though this seems crazy, it’s not. Because the stock exchange is where the future is bought and sold. It’s about what people expect. Neither the present nor the past cares much.

Investors buy a company’s shares because they think that the company will make more money in the future. If the company actually makes as much money as expected, it won’t have much of an effect on the price. Whenthe earnings are good, but lower than expected, some investors will be disappointed and walk away, which will cause the price to go down. On the other hand, the group does better than expected, prices may go up even more. What is true for individual businesses is also true for macroeconomic data like unemployment rates. If they turn out better than expected, that’s good for the horses and vice versa. The stock market is always full of surprises like this.


People tend to make up a story to explain a serious event (“course rises/falls”) because they like stories. This is written about in stock market reports, but it is often just a guess because investors aren’t asked why they buy or sell shares. Even news can be seen in different ways. Higher growth is good for the stock market in general, but it could cause central banks to raise interest rates. And that can make the prices go up. In the end, it all comes down to what effect the larger weight is given in the markets. Stock exchange can be a game that more than one gang plays. As a beginner, keep this in mind whenever you feel like you don’t understand the stock market anymore.

The most important things that affect prices on the stock market are:

Interest rate changes 

In the short term, the central banks’ monetary policy has the most impact on the level of interest rates. When interest rates go down, share prices often go up. This is because of a few things: The present value of expected profits in the future is going up. Stocks look better because of this. Even compared to investments with a fixed income, like fixed-term deposits and bonds, stocks look better when interest rates go down. Financing costs are going down for businesses, and investments are becoming more profitable. This gives people hope that they can make more money. The opposite is usually true when interest rates go up.

Economic data and mood indicators

Every day, a huge amount of economic data is sent all over the world. Some of these messages cause prices to change. There are numbers about how the job market is doing, how companies are investing, how much inflation there is in Germany, and how customers feel about buying. Because private spending is a big part of how well the economy does.

Herd behavior

On the stock market, there are always trends that can have a big effect on prices for a short time. At the end of the 1990s, for example, everyone was really excited about the Internet and other tech companies. In 2021, a lot of investors put their money into a few companies that had been doing poorly, like Gamestop, which sells video games. The price of these so-called “me stocks” went up sharply because of how much people wanted them. But as the history of the stock market shows, these trends are only short-term changes.


When dark clouds form in the markets, like in 2020 at the start of the corona pandemic or in 2008 during the financial crisis, many investors are afraid. They run away from investments that are risky and go for ones that are safe. Stock is sold. This drives prices down to rock bottom. If, on the other hand, carelessness spreads on the stock exchanges, more and more investors win and prices shoot up. The mood of investors can change a lot.


Governments decide how the economy works. New laws and regulations can be good or bad for the stock market as a whole or for certain industries. One example is when the financial markets were opened up. This was good for the international banks, whose stock market values went up more than the market as a whole. But because of the financial crisis, politics went backward. In the meantime, the banking industry complains that rules are too strict. Because of this, the prices of many institutions went down much more than the market as a whole.

Structure change and (mis)success

Some business ideas stay popular for a long time, while others lose their luster over time. The development of technology has led to the rise of streaming services and the decline of traditional film companies. If a business can adapt to changes in the market, it can be successful and also increase its market value by changing the products it sells. In the worst case, a company goes out of business because it can’t make money or because someone stole from it. The shares are no longer worth anything. With a large spread, like a worldwide equity fund, you can reduce this (rare) risk.

As a long-term investor, you don’t have to worry about the daily ups and downs. In the meantime, falling prices and bad moods that last a few months are just a footnote in the history of the course. As a stock investor, you should keep this in mind if you get nervous when prices go down and start thinking about selling. In theory, it’s true that selling can help limit losses in the short term. The only problem is, when are you going to get back in? Most investors are holding off until prices have gone up a lot. But at the end of the day, you lose money. As a long-term investor, it is smarter to wait out price drops, even though it hurts to think about losing money.

Not for the weak-hearted

In the past, there were times when the MSCI World net lost more than 40% or made more than 55% (orange line). With a 20-year investment, on the other hand, the average annual returns were only between 6 and 14% (blue line), which is well above the zero line.

Theoretical losses, also called “book losses,” don’t cost you money until you click “sell.”
If you want to find a good way to save money, the financial tip savings plan calculator can help.

What is an index of stocks?

Stock for beginners – Public limited companies are not the norm, and not every company is on the stock exchange (Deutsche Bahn is a well-known example). But at the largest trading place in the world, NYSE, shares of thousands of different companies are bought and sold. Categories make things easier to understand: For example, there is a difference between big, medium, and small companies. Standard values, blue chips, and large caps are all names for companies with the largest market capitalization.

A stock index is a single number that shows how the companies it tracks have changed over time. This lets you see at a glance how, on average, the whole market changes. Indexes are made using fixed formulas, and the value of an index is measured in index points. The counter is sometimes used instead of points. To put it simply, an index goes up when the prices of most of the companies it tracks go up. When a lot of companies’ prices go down, the index goes down.

In the news and on financial websites, profits and losses are often shown as a percentage. You can find this kind of market data on a lot of other websites, as well as in daily newspapers and specialized media.

In the United States, the S&P 500 is seen as the most important index. It shows the 500 biggest companies by market capitalization. Standard & Poor’s is one of the most well-known index providers in the world. The Dow Jones is a well-known traditional index for the American stock market, but experts don’t think it is representative. There is the Nikkei in Japan, the FTSE 100 in Great Britain, and the CAC 40 in France.

MSCI World Index

The MSCI World Index is almost certainly one of the best global indexes. It has almost 1600 standard values and mid-caps from 23 countries. In each of these countries, 85% of the market capitalization is covered by the world stock index. But the index provider only includes “developed” economies, which are the only ones whose stock markets are in the index. Schwelen­len arender countries like China and India are not included, and South Korea is still not included. They are put together in a different group than the MSCI Emerging Markets index. All Countries or ACWI is what MSCI calls the group of developed countries and Schwellenlen/lenders. The FTSE All-World index is an option from the British index provider FTSE.

Indices are not just made for countries and regions, though. For example, there are also indices for industries and business strategies. Sustainable indices are becoming more and more popular. Some companies are purposely left out of these indices. There aren’t many limits to being different. Just MSCI, which makes indices, figures out 150,000 indices every day.

Stock indices

Stock indices are looked at often to see how they are put together. For example, if a company in the MDax has a higher stock market value than one in the Dax group, it can move up to the leading index. As in the Bundesliga, another value is going up for this. And this also has the same results: Fund managers who follow the development of an index tend to push the stock away. This can make the price go down a lot. On the other hand, promoters can be bought, which is good for their course.

Indices can be worked out in different ways. Price indices and performance indices are two kinds of indices. The first ones only show the price gains of the companies that are included. The dividends are also part of the second group. When they are figured out, it is assumed that the profit distributions are put back into the companies’ shares. A performance index is something like the Dow.

In the United States, which has by far the biggest stock market in the world, the value of listed companies is almost twice the size of the economy as a whole. There are clear cultural differences in these numbers: In the U.S., it’s normal to own shares, but Germans are more careful.

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