All that You Really need to Know about Stocks before Investing

Shares aren’t just bits of paper

Shares signify your possession in the company. Once you buy stocks, you own some amount of the company’s assets and profits. A company is thus owned by all its shareholders.

Whether you call them stocks, equity or shares, all connote the same.

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Your part in the company

Being a stake holder means that you are one among the many owners of the company, which is why you have a claim, usually very small, on everything that the company owns. This would technically mean that you own a petite shard of every piece of furniture, every trademark and every contract of the company. As an owner, you are entitled to your share of earnings and any voting rights attached to the stocks.

Types of stocks

There are many different kinds of stocks. The most common ways of dividing the market are by size of the company, sectors, and type of growth pattern.  Size of the company is measured through its market capitalization and hence we hear people talking about high-cap vs. low-cap stocks. Different companies deal with different sectors and it is solely the investor’s decision to invest in whichever sector he believes is developing or will develop soon, e.g. Energy vs. technology stocks. Stocks are also identified depending on their growth patterns e.g. growth vs. value stocks. Investors should look through all the types warily before investing and take advice from experts on which type lead to better returns.

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Keeping a track record

In a short term, the share prices are likely to drift based on the enthusiasm, news, rumors and fear. In a period of long term, the total earnings made by the company conclude whether the price graph will go up, down or sideways.

Best for good returns

An average large stock has returned 10% or higher every year since the World War II ended, which is well ahead of the inflation. Stocks have proved to be better than real estate investments, return of the bonds or any other saving schemes. Thus, investing in stocks is considered to be the best when it comes to long term investment goals like retirement.

Differing from the rest

An individual stock does not represent the whole market. A good stock can rise even when the market is going down; likewise, a bad stock sink even when the market is blooming.

Predictions may not be up to snuff

Stock prices depend upon the prophecy of future earnings. A brawny past record augurs good returns, but even the best companies may slip.

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The price does not show how expensive the stock is

Value of a stock depends on the returns it bestows. Thus, a $200 stock can be cheap if the company’s earnings projections are high enough, whereas a $20 stock can prove expensive if the company’s earning potential is feeble.

Assessing the value of stocks

To examine if a stock is under or overvalued, investors often compare its price to revenue, earnings, cash flow and other elementary criteria. Two companies of the same industry are often compared to get a hold of a company’s performance expectations. Companies with slow growth are assessed in a different way than those whose sectors are strong and robust

Making a smart move

A good portfolio for a long term growth would comprise stocks of several different industries. In this way, if one sector drowns, you have something to rely on.

Be Safe by holding good stocks and do not engage in rapid-fire trading

It’s very easy to hit upon a broker who would cost you less than $10 for a trade, but there are more costs to trading which stack the odds against investors, like Active include mark ups and higher trading taxes for short term trades. Traders have to constantly keep a close eye on the capricious stock-prices which becomes intricate if you have a full time job somewhere else. Also losing a substantial amount in a short term would sound extremely nerve wrecking if you are a risk-averse person. Although, one can track and trade in stocks through mobile trading platforms from popular brokers.

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