Introduction to stocks and shares
The main stocks and shares investment opportunity we have is investing in stock exchange. Investing in Country Stock exchange requires a lot of requirements. Let’s focus on what’s the fundamental aspects of Stocks.
1. What is a stock?
A stock is a type of opportunity that we can claim the portion ownership of a specific company. Public companies sell their shares on an exchange in their country Stock Exchange. Investors can then buy and sell these stocks to one another through stockbrokers. Apart from that by owning these shares, the holder can be allocated a share of the profits of a company, which is distributed in the form of dividends. When you own shares in a company, you are known as a shareholder because you have a share in the company’s profits.
There are many types of stocks, but In general, there are two main types of stocks, common stocks and preferred stocks. Common stockholders have the right to receive dividends and vote at stockholders’ meetings, while preferred stockholders have limited or no voting rights. As a rule, preference shareholders receive higher dividend payments and, at the time of liquidation, a higher asset claim than ordinary shareholder. For investors, stocks are a way to grow their money and overcome inflation over time.
2. Why does a company issue shares?
The development growth of a company requires access to an enormous amount of capital. In order to go from an idea that germinated in the brain of an entrepreneur to an operating company, he/she has to,
- rent an office or a factory
- hire employees
- buy equipment and raw materials
- build a sales network
- marketing among other things.
Depending on the size and scope of a business start-up, these resources require considerable capital. So to get the capital funds companies issues shares.
3. How the stock price is determined?
When the company registered in stock exchange, the share of the company goes live in the market, the initial price is set with some terms of market cap and units they have. After the share went into market the investors and traders stars to progress the stock trading. The price will rise if there is a significant demand for its shares due to favorable reasons. Stocks track the supply and demand for a company’s stock, which has a direct impact on its stock price. Sellers of the stock can drive down the price if the firm’s future growth potential does not appear to be promising.
The stock price is totally determined by traders over for long time. Stock prices fluctuate throughout the day, but investors who own stocks expect the value of stocks to rise over time. Not all companies or stocks do this, however: companies can lose value or close entirely. In this case, equity investors could lose all or part of their investment. That why investors have to invest their funds into various types of good performing companies to maintain a good portfolio.
4. How do I buy a share?
Usually stocks are bought and sold on the stock exchange since as Sri Lankans we own the Colombo Stock Exchange (CSE) to do these jobs. Your shares are available for investors to buy and sell on a stock exchange. Typically, investors use a brokerage account to buy stocks on the exchange that shows either the buying price or the selling price. The share price is influenced, among other things, by supply and demand factors in the market. We have to learn about how to invest in Stock exchange and how to choose the best stockbroker for managing our funds.
5. How can you make money with stocks?
Stocks are more risky than other normal yield investments, but they can also generate higher returns. Stock investors can make money by investing in stocks by using these methods:
1. Stock value – When the price of a stock goes up while you own it and sell it for more than you paid for it. The return is based on your company. If the stock value of the firm you invested in increase by 10% over an year it means, you will generate 10% of return form your capital you invested in stocks.
2. Dividends – Dividends are regular payments to shareholders. Not every firms offer dividends to their shareholders. But most offer dividends in the quarter, semiannual or annual return.
( If you wish to Watch a cool video explaining this topic – CLICK HERE )
6. What you need to know about stocks?
Investing in stocks is varying from trading in stocks, both are two different topics. As we focusing on investing we have to concern our vision for a long time. Then only we can able to make good return over time. That means you must have a diverse portfolio with lots of stocks and stay loyal and discipline to them through good times and bad times.
Investing in individual stocks takes time. You should research every stock you buy, including an in-depth look at the bones of the company and its finances. Instead, many investors choose to save time by investing in stocks through equity funds, index funds, and ETFs. It allows you to buy many stocks in one trade, which provides instant diversification and reduces the labor involved in investing. We have to learn about equity funds, index funds, growth funds for better knowledge.