Investment in Stocks
Stocks (shares) are investments that attract the most attention in financial markets, and perhaps stocks are worth it, because investors can expect the highest return from stocks among the range of traditional investments.
All issued shares represent whole ownership of the company. If an investor has purchased 100% shares of the company that means he owns the entire company, but if he has purchased 33% shares of the company that means he owns a stock that represents one third of the company’s ownership.
Company’s shares may be quoted on the Stock Exchange or not. If shares are listed on the exchange - buying and selling of such stocks is very simple. If shares are not listed on the Stock Exchange, they can be also bought or sold, but the process of trading is more complicated, while such transactions are executed in private markets and are relatively rare compared to trading on exchanges.
Investing in stocks may bring return in two ways:
- Dividends (or other payoffs).
- Profit from the price increase of stocks.
Sometimes one, sometimes another source of return may seem more significant, but none of those can be a real thing to hold on. Prices of stocks do change very fast and are too unstable to try to predict it. Dividends are more stable but also may be the wrong ratio to trust - even if the company does not pay any dividends or pay a little, this is not necessarily mean that company is a bad investment. And if company has been paying high dividends for a couple of years, it does not mean that the same company is capable to pay such dividends consistently.
- Common stocks are ordinary registered shares that represent a proportional ownership of the company with all the material (like dividends and other capital payments) and non-material (like voting) rights.
- Preferred stocks are not really as privileged as the name says. These shares are called preferred only because they have priority over the ordinary shares when company goes bankrupted and also preferred stocks have dividend priority. In most cases preferred stocks have no voting right and have fixed dividend which is some percent from nominal value. Other preferred stocks may have a variable dividend which depends on company’s results or dividends of common stocks. Preferred stocks may be cumulative or noncumulative. If preferred stocks are cumulative they are better from investment point, because can pay dividends later for the loss-making years.
Stock market is consisted of all the stock exchanges and other places where stocks are traded. Stock market is very popular between investors from the entire world. Despite the fact that investors give priority to local stock markets, globalization drives diversification in different regions.
Stock market allows for investors to trade stocks in fast and convenient way. Stock market is a top of capitalism and evolves for centuries being the center of capital markets.
There are different investment strategies:
- Investment strategy in growth stocks
- Value investing
- Unprofitable investment
- Penny stocks: Shares that are trading in low prices.
- Growth: Shares of fast growing companies.
- Value: Shares of stable cash flow companies.
- Blue chips: The most known stocks.
- Large cap: Stocks that have large market capitalization.
What others say on Stock Investing:
- Stock Investing The Warren Buffett Way
- Stock investing tips - Money 101, Lesson 5 - Money Magazine
- How to Invest in Stock
- Stocks - Markets & Investing - SmartMoney.com
Are you looking for more valuable information? You should read the book Investing for Beginners Exposed