Understanding Stock Market Fundamentals

Introduction

The stock market can seem intimidating at first, but understanding its fundamentals is essential for building long-term wealth. This guide will walk you through the basics.

What is a Stock?

A stock represents partial ownership in a company. When you buy shares of a company, you become a shareholder and own a small piece of that business.

Key Terms

• Market Cap: Total value of a company’s shares
• P/E Ratio: Price-to-Earnings ratio
• Dividend Yield: Annual dividend payment divided by stock price
• EPS: Earnings Per Share

Types of Analysis

Fundamental Analysis

Examines a company’s financial health:

def calculate_pe_ratio(price: float, earnings_per_share: float) -> float:
    """Calculate Price-to-Earnings ratio."""
    if earnings_per_share <= 0:
        return float('inf')
    return price / earnings_per_share

# Example
stock_price = 150.00
eps = 5.50
pe = calculate_pe_ratio(stock_price, eps)
print(f"P/E Ratio: {pe:.2f}")  # P/E Ratio: 27.27

Technical Analysis

Studies price patterns and trading volume to predict future movements.

Getting Started

1. Open a brokerage account
2. Start with index funds for diversification
3. Invest regularly (dollar-cost averaging)
4. Think long-term

Conclusion

Investing in the stock market is a marathon, not a sprint. Focus on understanding the fundamentals before diving in.