Imagine if you could sit back, watch your company grow, and collect the dividend checks as the money rolls in! This situation might sound like a pipe dream, but it’s closer to reality than you might think.
As you’ve probably guessed, we’re
talking about owning stocks. This fabulous category of financial
instruments is, without a doubt, one of the greatest tools ever invented
for building wealth. Stocks are a part, if not the cornerstone, of
nearly any investment portfolio. When you start on your road to
financial freedom, you need to have a solid understanding of stocks and
how they trade on the stock market.
Over the last few decades, the average
person’s interest in the stock market has grown exponentially. What was
once a toy of the rich has now turned into the vehicle of choice for
growing wealth. This demand coupled with advances in trading technology
has opened up the markets so that nowadays nearly anybody can own
stocks.
The Definition of a Stock
Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.
Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.
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| Figure 1: Reference :http://economictimes.indiatimes.com/markets/statistics/marketcoverage.cms |
Are you a beginner investor or a trader
and often ask yourself: I want to learn share trading or what is the
best way to learn how to trade shares? Well these are the same questions
that many investors and beginner traders around the world ask
themselves and are confused as they don’t get answers to such complex
queries that would help them to enter the share market. Best option is
to start taking a free online course or a trading tutorial that will
teach you how to trade.
Stock prices change every day as a
result of market forces. By this we mean that share prices change
because of supply and demand. If more people want to buy a stock
(demand) than sell it (supply), then the price moves up. Conversely, if
more people wanted to sell a stock than buy it, there would be greater
supply than demand, and the price would fall.
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| Figure 2: Reference: http://www.moneycontrol.com/stocksmarketsindia/ |
Understanding supply and demand is easy. What is difficult to comprehend
is what makes people like a particular stock and dislike another stock.
This comes down to figuring out what news is positive for a company and
what news is negative. There are many answers to this problem and just
about any investor you ask has their own ideas and strategies.
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| Figure 3: Analysis company |
The most important factor that affects
the value of a company is its earnings. Earnings are the profit a
company makes, and in the long run no company can survive without them.
It makes sense when you think about it. If a company never makes money,
it isn’t going to stay in business. Public companies are required to
report their earnings four times a year (once each quarter).If a
company’s results surprise (are better than expected), the price jumps
up. If a company’s results disappoint (are worse than expected), then
the price will fall.
The important things to grasp about this subject are the following:
1. At the most fundamental level, supply and demand in the market determines stock price.
2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.
3. Theoretically, earnings are what affect investors’ valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors’ sentiments, attitudes and expectations that ultimately affect stock prices.
4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.
2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.
3. Theoretically, earnings are what affect investors’ valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors’ sentiments, attitudes and expectations that ultimately affect stock prices.
4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.
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| Reference: http://www.moneycontrol.com/stocksmarketsindia/ |
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