Stocks are a type of investment that includes putting your money on certain companies with the intention to grow your money as the value of the stocks increases, and it depends on the demand for the stocks. Be sure that you invest stocks on companies that you see potential with enough research being done.
By buying stocks of a company, you are actually buying a part of the company. This would earn you the benefits of possibly getting dividends and even voting rights during shareholders’ meetings. Most importantly, you get profit when the company stock value goes up higher than the amount that you paid.
What exactly is a stock?
Imagine you are the owner of a phone company, you need some funding to develop a phone so you issued an initial public offering (IPO). By doing IPO, you are allowing your company’s stocks to be put up on a market where people can buy them. So imagine your close friend knows what your company is all about and he wants to invest in your company, he bought some stocks for your company.
After your company releases a new phone, a lot of people are buying them because it is the latest 5G phone that is better than Apple or Samsung, your company is making lots of money. This is where your company’s stocks will have more demand as the public now believes that your company has the potential to grow even further.
With the increase in the demand for your company’s stocks, the value of the stocks that your close friend holds now increase as more people want to buy your stocks. In this case, your friend can sell the stocks and make a profit from him buying the stocks at the start at a lower price. Your friend can also choose to buy more or hold onto the stocks and hopefully, your company grows even bigger so that the value can increase again. Hence, it is really up to you if you want to decide to hold, sell, or invest more.
Generally, people would prefer to diversify their investments so that if one investment doesn’t do well, the others can cover for it. It goes with the saying of “Don’t put all your eggs in one basket”, with the intention to safeguard your eggs such that if something goes wrong with the basket, you don’t lose all your eggs. By investing in different stocks and types of investments, you are hedging your risk of losing your money as you are very unlikely to lose money in all your investments.
Common VS Preferred Stocks
Common and Preferred stocks are the two types of stocks with different rights and privileges. For Common stocks, it grants you the right to do voting during shareholders’ meetings and it also gives you the privilege to receive dividend payouts issued b the company. As for Preferred stocks, it doesn’t have the voting rights but it comes with a greater claim on assets and earnings as compared to Common stocks. Other than that, Preferred stocks also grant the shareholders to have priority over Common stocks shareholders when it comes to dividend payouts and in the event of bankruptcy.
What Affects Share Prices?
Generally, the number one factor for the fluctuation of stock prices is the supply and demand for the specific stock. It is just a simple economic concept where the price of the stocks will be affected by the number of shares that are up for bidding and the number of people who are trying to bid for the shares. When there is more supply than demand for the stock, the price of the stock will be lower as there isn’t much demand for the stock. However, if the demand for the stock is higher than the supply, people will be bidding on it to win the stock and this causes the stock price to increase as people are fighting for it.
However, before looking at the supply and demand of the stock, there must be reasons as to why people are interested in the stock. Information is very important for investing in the stock market, you have to understand what you are putting your money into and how risky it is. Reports such as earning reports can tell you about the growth of the company, you may want to invest in a company if you see that their earnings are starting to grow. By reading up information, people would be more likely to support a certain company which then leads to an increase in stock prices as many people see potential growth in that company.
Things to take note of before you start trading stocks
- Make sure that you can afford to lose your capital, don’t put all your money into investing. Ensure that you have an emergency fund ready and keep in mind that investment doesn’t always convert to profits.
- Do your own research, make sure that you are not trading blindly, and study the market before you start putting your money into it.
- Don’t get emotional, if you are losing money, take a break, and come back again the next day. Don’t get emotional and try to get everything back by putting in more money and end up losing more.
- Don’t be greedy, take your time to learn, don’t start overtrading when you are not experienced enough, slowly understand how trading works, and slowly increase your capital.
