How Do Investors Choose Stocks? – Richard Coffin

Investors decide which stocks to buy by understanding what stocks are and what they hope to achieve by investing in them. Stocks are partial shares of ownership in a company, and by buying a stock, investors buy a share in the company’s success or failure as measured by the company’s profits. The price of a stock is determined by the number of buyers and sellers trading it. Investors aim to make money by purchasing stocks whose value will increase over time. Some investors aim to grow their money at a faster rate than inflation diminishes its value, while others have a goal of “beating the market,” which means growing their money at a faster rate than the cumulative performance of all companies’ stocks. There are two main groups of investors, active investors and passive investors, who have different beliefs about the stock market and how to select stocks.