How to Follow the Stock Market
Informed investors stay on top of things, and they follow the stock market. This can be done on three levels without much effort. Your source of info can be a financial news network, the financial section of a major newspaper and/or a financial web site.
To get the big picture, you’ll need to keep up to date on the stock market in general. To be well informed you should also keep tabs on various market sectors, segments and industry groups. If you buy, hold and sell individual stocks, you’ll want to follow specific stocks as well.
You get a handle on the stock market in general by following the 3 major market indicators or indexes: The Dow Jones Industrial Average (sometimes just called the DOW), the S&P 500 Index, and the NASDAQ Composite Index (the NASDAQ).
The DOW is the oldest and still best known of the three. Only 30 stocks are represented here and these are major household names for the most part, like American Express, General Electric and Wal-Mart. If the Dow moves from 10,000 to 10,100, for example, it is up 100 points, 1%. In common language, the market was up 1%.
Big investors follow the S&P 500, which tracks 500 major U.S. stocks and is often used as a benchmark for performance. If you beat the S&P 500, you beat the market. These 500 stocks make up well over half the value of the total U.S. stock market where more than 5000 stocks trade nationally.
The NASDAQ tracks all stocks that trade on that (very large and busy) stock exchange. It is often considered a barometer for how growth and high-tech stocks in general are doing.
On a good day all three of these market indexes should be up. When the stock market has a bad day, all three will likely be down significantly.
Stocks are commonly divided into segments or sectors, which can go in and out of favor with investors as market trends change. Experienced investors pay close attention to these market segments, and so should you. Lipper indexes and fund indexes give you a handle on past performance for selected industries, small-cap vs. mid-cap vs. large-cap stocks, growth stocks vs. value stocks.
If you manage your own portfolio of stocks you will need to follow individual stocks as well. For mutual fund investors this is not necessary.
You are uninformed as an investor if you do not follow the stock market and the sub-sectors in it. In determining how to invest, when and where … first you need to know the investment landscape.
Stocks are a major asset class, and the primary growth engine of a well-managed investment portfolio. Even when the stock market in general is on a downward trend, some stock sectors, segments or groups buck the trend and show relative strength. You won’t spot these opportunities unless you follow the market.
Once you establish your own simple routine, you can stay on top of things with just a few minutes of effort each week. This is a major part of the puzzle of leaning how to invest successfully. How can you make sound investment decisions if you don’t know what’s going on in the market?
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.