An Introduction to Stock Investment
Let me first say this: Stock investment is not for the feint hearted, or those driven by desperation into staking every penny they have on some stock. Sure, occasionally great amounts of money have been made this way, but also, tragically, great amounts have been lost. Stock investment is, for want of a less crude term, gambling.
It is a game of probability, research, and informed guesswork. Nothing else. But you have to keep your finger on the pulse and look as far ahead as you can into your stocks future, and know when to sell. If you really don’t trust yourself enough with this, don’t worry, you can still dabble in stock investment by putting yourself in the capable hands of a reputable stock advisor.
Because of the nature of stock investment, as a general rule of thumb it is wise to not invest money which you really can’t afford. It is better suited as a means of speculating to accumulate with some spare cash rather than taking huge gambles and risking everything you have. Try to avoid becoming reckless.
What are stocks?
Stocks, also known as equity or shares, in a nutshell are a share of the ownership of a particular company. The larger your stocks, the more of the company you own. With stock ownership comes the entitlement to your ‘share’ of the companies earnings, including the ability to have your say over your own shares. What must be made clear is, you don’t actually have a say in how the company runs – you only have your say over your own shares. Stock purchased is also represented by a stock certificate, which shows you how much stock you own.
How you make your money
When you own stock, you can make your money in two ways. You can sell it, upon which you forfeit any future ownership of the stock in one go, but recoup their full and current market value. Or you can retain your stock, and you will be paid in dividends, meaning you will receive a share of the companies profit every so often in proportion to the amount of stock you own. For a stock investor, a worst case scenario is the company goes into bankruptcy and you lose your stock. In most cases, you will recoup some amount of whatever is left after all creditors have been paid off. Another scenario is, you may not receive any regular dividends from the company for a number of years, by which time your stock may depreciate.
Stock is bought in two ‘markets’ – primary and secondary. When a company opens itself to stock investment, it does what is known as an IPO (Initial Public Offering). This is when a company sells its first shares on the public stock exchange. During this period, you can apply to the company to purchase stock. More commonly used however is the secondary stock market, which is an open market.
Purchasing shares through the stock exchange is done through a broker. A broker is an expert in the stock market who can advise you on what stocks to purchase, what stocks to sell, and generally handle everything for you. Having a stock broker handle your stocks is perhaps the safest way of edging your bets on making money in the stock market. Another, far cheaper form of broker is a ‘discount broker’, who simply buys or sells what you tell them to, and offers no services or advice other than that.