5 Things One Must Know About Investing In Stocks
Shares are one of the best-known investments globally that generate the greatest interest in the financial world. Their influence ranges from the world’s great economies to small investors. If you, too, are fascinated by this sector, this post is for you.
Today, we will detail the five key things one should know about stocks before investing.
#1 What Are Shares And Their Types?
A share is a part of the capital of the company. So, when you buy a share, you are buying a part of that company. That is, you become one of the owners of that company.
Types of Shares
The main classes of shares are ordinary and preferential. The main difference among them is that the preferential shares have a preferential dividend, and in case the company is liquidated, the preferential shares have priority over ordinary shares. However, these shares do not have voting rights, while ordinary shares do.
Wondering What Is A Dividend?
It is basically a part of the company’s profits split to shareholders. When the company earns a profit, those earnings are paid to shareholders as a dividend. The companies usually pay it quarterly to investors as a bonus. You can learn more about it here – Dividend explained.
#2 Do I Need A Degree In Finance To Invest In Stocks?
No, however, it is very important to have some training before investing. A good investor does not form in a couple of months. It requires a lot of dedication, commitment, and discipline. Distrust anyone who assures you that with a one-month course, you will master the art of stocks. Howbeit, there are certain types of Investors. It depends on the level of risk and the term in which you want to obtain the return.
It goes from a risky investor who can buy and sell a share in a matter of minutes to a conservative investor who can hold his share for 15 years or more. In my case, and in our personal opinion, we prefer to do an exhaustive analysis of the companies and invest in the long term. But that’s our personal opinion. There are investors who became very successful, being riskier.
#3 General Terms You must Know
IPO: Its acronym for Initial Public Offering. It is when a company decides to sell its shares on the stock market.
Portfolio Theory: It is a statistical model that allows creating an optimal investment portfolio where risk is minimum and profitability is maximum.
OPA: It stands for Public Acquisition Offer and is when one or more companies make an offer to buy another company’s shares.
Fundamental Analysis: It is a study done on the elements that affect the value of a share. Your goal is to determine how much a share is worth. Remember that value is different from price.
Technical Analysis: Study the stock’s behavior through graphs to predict the stock’s behavior. Many investors and traders use this tool to complement their decisions.
Value Investing: It is an investment methodology where fundamental analysis is made to determine which business transactions to invest in. Warren Buffet is one of the supporters of this methodology.
#4 How Much Do You Earn By Investing In Stocks?
Does “The Wolf of Wall Street” will ring a bell for you? Well, it certainly does for most of us. Movies and television have led us to believe that the Stock Market is the place where millionaires become billionaires and where ordinary citizens, people like you and me, become millionaires in a very short time.
Although this is not a lie at all, the whole truth is that fortune is born first in the mind of the investor. Once he or she understands that strategy, discipline, patience, and responsiveness are key players of the stock exchange; they start to take the right steps. Read: what to look for when investing in stocks for deeper understanding.
However, the answer to the above question is – it is uncertain. You don’t know that the shares you buy can give you high ROI or be worth nothing and lose all your investment. So our advice is not to invest the money you need to pay the rent or the university semester. Rather just start with Investing a part of your savings that does not compromise your necessities.
#5 How Do You Make A Profit?
The two basic ways to make a profit are via dividends paid by the company or by selling the stock for a price higher than the purchase price. To make a fruitful decision, one should know – how to pick a stock to invest in. A great piece of advice here by Warren Buffet is: “Never invest in a business you can’t understand.”
That’s it for now. Keep reading our blogs for the latest updates in stock marketing.