The stock market has generated a lot of wealth for many Americans. The key factor is not whether the entire market is going up or down, but what individual stocks are doing, and how much their prices are changing. Following stocks lets you study the behavior of individual stocks. It tells you how risky they are and how they have behaved in the past. Adding in information about interest rates, commodities and currencies lets you increase the odds of investing successfully by predicting correctly how they will behave in the future.
For most casual investors, following stocks is a part-time activity that lets them generate extra income. While most newspapers still publish lists of stocks, it takes much less time to access stock price and related information online. Sites such as Yahoo Finance, Google Finance and MSN Money let you look up stock prices and set up portfolios for automatic tracking. These resources let you follow the stocks in which you have an interest and decide how to invest.
The stock market works and trades on information. If you have the right kind of information, you have a better chance of predicting stock prices correctly and investing successfully. Key information is historical stock prices, interest rates on 10-year treasury bills, the prices of commodities such as oil, copper and wheat and the exchange rates of major currencies. All are available on the major financial sites.
Following stocks lets you see how much and how quickly they change. This is important because it determines how risky your investments will be. Young people can generally handle more risk than older investors, but you have to be comfortable with the degree of risk you are taking. If you can afford to lose all of your investment, you can invest in stocks that vary of lot. If you can't afford any losses, you have to stay with stocks that don't change much. Low risk also means a lower potential for gains, and higher risk increases the chances that you may make a lot of money.
Once you have your information and know how much risk you can take on, you can select the stocks in which you want to invest. In your information, you are looking for trends and correlation. Oil company stocks may go up when oil goes up and the dollar goes down. Stocks of companies that borrow a lot of money may go down if interest rates rise. When you see stocks that follow these kinds of trends and if the risk is acceptable, you can either invest in them or follow them for a period of time to see if your analysis was correct.
Even if you follow stocks, get all the right information and spot the right trends, you won't make money on every trade and every month. Stock market investments average out over longer periods and many stocks. Of your investments in stocks, a few will make losses, most will be average and a few more will make gains. Working carefully at following stocks and getting information make it more likely that the gains will outnumber the losses most of the time.
Bert Markgraf is a freelance writer with a strong science and engineering background. He started writing technical papers while working as an engineer in the 1980s. More recently, after starting his own business in IT, he helped organize an online community for which he wrote and edited articles as managing editor, business and economics. He holds a Bachelor of Science degree from McGill University.