Introduction to Stock Investing
Buying a company’s stock is one of the oldest and simplest investments in the business world. In short, you’re making an investment in a company.
If that company performs well and grows, the demand for their stock will go up, as will the stock price, and you can make money by selling the stock or collecting benefits like dividends.
Anyone can buy stock, which makes it accessible for even the most unskilled of investors.
What are stocks?
Stocks are effectively shares of ownership in a company. If you own enough stock, say five to ten percent of total shares, you’d have significant influence on how that company is run.
However, most people just own 1 to 10 shares of a company, or more or less, and you still have influence, but your votes on important decisions will make up less than the total votes, so it doesn’t matter as much.
Most stocks sold on the open market for individual companies give you the right to vote in shareholder meetings. This means that you can vote on who is on a company’s board, whether they acquire a certain company, and so on. All of that’s cool and all, but it’s not really why stocks are usually bought and sold.
Why People Buy and Sell Stocks
Simply to make money. Investors buy and own stock in order to make a return on their investment. You can buy a stock whenever and sell a stock whenever, as long as there is a buyer and a seller willing to take you up on the other side of the deal.
Most of the time, you aren’t buying from the company directly either; rather, you’re buying from another stockholder who wants to sell their position. Companies initially sell their stock in something called an initial public offering or through other public offerings after the fact.
These let the company raise money without having to take out a loan.
Ways to Make Money with Stocks
There are tWo primary ways the stock appreciates, or, in other words, people are willing to buy that stock for more money than you bought it for. If the company makes great decisions and turns a profit, more and more people will want to own their stock to make money with them.
This increase in demand drives the price up, assuming the total number of stocks on the market stays the same. This is simple supply and demand. If you’re selling a painting and you only have one person bidding, it’ll probably go for cheap.
However, if ten people are bidding on it, it will likely go for a lot more. Stocks can appreciate for any reason, and their value is tied to a number of factors that don’t always tie back to just how much money a company makes.
Stocks for companies that lose millions of dollars each year can go up in price if the market thinks that they will be more and more successful very soon.
The Role of Dividends
Some stocks, but not all or even most, pay dividends. Think of this as a way to entice people to buy a company’s stock and hold on to it.
Companies would want to pay you a dividend, so you hold their stock and don’t sell it. Supply and demand mean that this will drive the price up over time.
Stock Market Dynamics
We’ve covered what stocks are and how you make money with them, but what technical otherities are we missing? After a company sells a share, it goes on the open market, so after the initial offering from a company, you buy shares from other investors, not the company itself.
You, the investor, buy a stock through a stockbroker or brokerage. You can use online platforms like Weibo, and if you’re just getting started, you can even do paper trades so you can trade real stocks without investing any money and see if you would have made an investment.
Some platforms do charge you a fee, though, when you buy or sell stocks, and others are free.
Types of Stocks
There are different types of stocks that give you different rights or perks for a company. Most investors buying and selling on the open market will own what is called a common stock. Common stock gives you voting rights and can pay you dividends. That’s about it, though.
There are other types of stocks, like preferred stocks. The main difference is that preferred stocks have less volatility, so they’re a more secure investment in most cases, and they usually get higher dividends. However, preferred stock owners don’t usually get voting rights in the company.
There are other types of stocks, but they’re a little beyond the scope of what any beginner or even experienced, run-of-the-mill retail investor would need to know.
Investment Strategies for Stocks
Long story short, owning stocks just means you hope the company will do well, so you can sell your stock for more than you bought it for and turn a profit. Stocks fluctuate all of the time, so when buying or selling any given stock, you’ll want to weigh your investment strategy.
Are you hoping to sell this in a month, or are you going to hold the stock for years? Each strategy presents different levels of risk and return. Hopefully, you understand a little bit more about what stocks are and why they exist.
Exploring Exchange-Traded Funds (ETFs)
This spreads out your risk and provides you with more stable growth, but it also gives you good exposure to the market as a whole, and, of course, the potential for explosive growth and returns is usually muted in ETFs as well, and that just about does it.
Hopefully, you understand a little bit more about what stocks are and why they exist.
