After news headlines, we usually find the business section on newspapers and finance segments on tv. It is a quite overwhelming, when you come to think of it... if you are not a business and finance graduate you probably would wonder the relevance of shares going up and down. You probably wonder and later assume that if company x's shares are down then the whole business is goinig down the drain.
Lately I have encountered some friends who have sort of mentioned stock buying and trading. Everything that they said were all new to me. Although I see it on TV, and believe me I watch the news presenter carefully while they talk about the line graphs and charts... but then yeah all what those figures meant to me were profits and losses or perhaps revenues and losses. I was drowned with the amount of information that I have to ingest in order to comprehend what my friends were trying to say... but sadly... all I knew that one of them lost something and won something the next day.... that's it. But hell yeah, that friend of mine did make a good amount of money... a good investment. I am drawn to the idea that your money is invested to something that can make could returns at the end of the day.
I wanted to speak to my parents who had a degree in Business/Finance field... they may somehow enlighten me... but I thought I must look it up on the web and see if there is something that I could find useful... Hallelujah!!! Thanks WikiHow! This is the only site that sort of given me the basic and most straightforward details that I need as a newbie.
First of all like in schools, I must define what a stock means (in business perspective). According to investopedia.com, the definition of "stock" is a type of security that signifies ownership and represents claim on part of the corporation's assets and earnings. So therefore, an ordinary individual like myself buys a certain number of stocks from a company, it means I own a certain portion of that company's assets and earnings. An owner of a stock is also known as a shareholder.
Now there are two types of a stock: the common and preferred:
1) Common stock - the owners of this kind of stock have to advantage to vote at shareholders' meetings and receive dividends.
2) Preferred stock - the owners do not have the right to vote but they could claim higher assets and earnings than the common stocks/shares.
Stocks are very important to every company it is said to be the foundation of almost all portfolios.
Here's what I was so keen to find out... HOW DO I BUY STOCKS?
Here's how according to WIKIHOW (well of course I re-worded my version)
1) DON'T DO ANYTHING AS YET. DONT GO SIGNING UP and START BUYING!
- Do your research first on stock investing. Wikihow recommended the book "The Intelligent Investor" by Benjamin Graham. But if you can't get hold of this book... go online... and type in "how to buy stocks for beginners". Browse through the results and find a site that gives you straight forward details... some sites can be very overwhelming.... I mean c'mon, most beginners probably have no idea on finance related terms... the more of these terms come up the more a newbie gets frustrated. One more thing that really does put me off... is the length of the information outlined at some sites that I came across... for a beginner... that is overwhelming...
***WIKIHOW says, the rule of thumb with stocks is to BUY LOW and SELL HIGH. Wow. That is something... a bit of common sense isn't it. OF COURSE,, you profit from something you bought cheap and then sold a little bit more expensive.
Example, buy 100 shares of stock priced at $20 each. This means that you have invested $2,000. After two years and the stock price rises to $30, your $2,000 investment becomes, $3,000 worth of investment... and that is $1000 profit!
In every business, there is always a downside... we'll flip the coin this time. If you but 100 shares of a stocked priced at $60 each, which makes a $6,000 investment, And apparently after 2 two years, the stock price has fallen to $30, the $6000 investment will then reduced to a $3000 investment which gives you a loss of $3000.
2) Never get confused on stock prices with the value of the company. These are two different things.
Market Capitalization is the value of the company aka market cap. This is determined by multiplying the stock price of a company by the number of shares that it has issued.
Examples:
If a stock price of a company is $100, and the company has issued 500,000 shares, the market cap is $50,000,000.
If CompanyA whose stock price is $10 can have a higher market cap than companyB whose stock price is $30 if Company A has five times as many shares issued as the second.
Remember that the market cap is the overall value of the company shares and NOT the value of the company itself.
3) BASICS, BASICS and BASICS.
Learning stocks does not happen overnight and does not really help if you in-depth straight away without understanding the basics. Stock prices are affected by the people's opinions on how they think companies are performing.
A stock price goes up if more people are buying than selling. And a stock price goes down when people want to sell the stock than buy it.
A company can have a strong stock price and a lot of shares and still overvalued because the people are confident that the company is worth more that it actually is. On the other hand the company can be undervalued even if it has and average stock price and fewer shares because people believe that the company is worth less than it actually is.
The goal to trading stocks is to buy undervalued stocks and and sell overvalued stocks.
4) Fix your finances. Pay off your debts and minimize the loans you are pulling out. Ideally high interest loans should be paid off apart from mortgages. Build three to six months worth of expenses in separate savings account before buying stocks.
5) Even though buying stocks is promising, you still have to plan and consider how much stocks could fit into your overall budget. This is as to whether you should buy individual stocks or mutual funds.
Mutual Funds are a collection of stocks bundled in a group. If you invested in a mutual fund that has 100 stocks. The increase of value of one of the companies in the mutual fund could make a lot of difference to your investment. On the other hand, if the value of one of the companies decreases in the mutual fund, there may be no serious implications to your investment.
Investing on individual stocks is risky but it comes with higher rewards. If you buy individual stocks and the value of the stock fails then you are like to lose a lot from your investment. But if the value of the stock goes extremely up, you are likely to earn more profits than your investment in mutual fund.
6) Awareness and Diligence. Research on the copy that you will be investing in. Go to online financial sites for an overview of the business and its key financial ratios.
7) Make a list of your prospective companies. This list would have the companies that you are going to hold on to no matter what. Set a target price and stick with it. Stick with your strategy over a long period of time. When you set your target and the stock hits the target price, you buy and continue buying as the stock becomes lower.
So these are the points that I have read at WIKIHOW.COM.
And when you get stuck on stocks, you can also learn the methods of buying stocks : http://www.wikihow.com/Buy-Stocks
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