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STOCK INVESTMENT | FUNDAMENTALS AND BASICS OF INVESTING IN SHARES

Updated on January 10, 2011

WHAT IS STOCK?

Stock or shares as is popularly called in most part of the world is the unit of companies that are spread amongst many people. A stock represents ownership in companies. Company assets are divided into units to allow for proper accountability of ownership and to save many law suits about who owns what part of a company asset.

Now that you have known what a share / stock is and why they are being created, the next question that should be on your lips is;

WHAT IS STOCK INVESTMENT?

Stock investment is the process of putting in money into a company by a third party that does not necessarily have control or influence over the company or its management for adequate rewards. The reward you get as an investor (share investor) is called dividend.

A lot of people don’t know how to invest their money in stocks and that is the subject matter of this article. What you are about reading below should be complemented with good investment strategy.

FACTORS TO CONSIDER BEFORE INVESTING IN STOCKS

  • General economic condition
  • Nature of the business
  • Reputation of the company
  • Market indicators
  • Intrinsic value of shares
  • Credibility of stockbrokers
  • Quality of financial statement

These points will be briefly explained below;

GENERAL ECONOMIC CONDITION

It is very important to firstly consider the prevailing general economic condition before investing in shares or stock of any company. Focus shouldn’t be removed from government policies while considering making stock investment. Fiscal and monetary policies of the government need to taken into account before putting your money into shares investment.

The government is trying to achieve one financial objective or the other at every macro or micro economic policies made. Government may for instance want to encourage citizens to save now rather than spend the money by lowering the central bank lending rate that will in turn allow commercial banks to increase the interest paid to savers. When investors should consider the general market returns with the interest that the bank is will to pay.

Again, other possible investment vehicles that are available at the time of buying shares should be given serious thought. You may be surprised to discover many investment opportunities that promises better yield on investment.

NATURE OF BUSINESS

In as much as I advocate diversification, I also strongly encourage people to be sure of prospects, and dangers of every industry that they want to invest their money in. As a personal investment strategy, I don’t invest in companies that deal on products which I can’t under any circumstance be convinced to buy. That is just me!

MARKET INDICATORS

Market indicators are tools used by analysts to monitor and predict the movement of share prices in the stock market.

I for example use market capitalization as part of my stock market investment decision tools. Market capitalization is in common parlance, the total worth of shares quoted at the stock market at any given time. For example, if company x have 5,000,000 units of shares (authorized, issued and fully paid shares) and the current market price of share today stands at $2, then company Xs capitalization is 5,000,000 multiplied by $2 which gives us $1,000,000,000.

When this is done for every company and totaled, then, the resultant figure is what we call the market capitalization of the stock market. Please note that this is done periodically with the prevailing stock price.

My stock strategy is to watch the movement of this and carry out further investigation. Falling market capitalization simply means sellers are more than buyers and I will probe this movement before deciding on what to do. You can use some other indicators like All-share index, etc

INTRINSIC VALUE OF STOCK

I will not be detailed in explaining this as many variables usually come into play. Simply put, intrinsic value of share is the perceived value of a stock by an investor.

CREDIBILITY OF STOCKBROKERS

A lot have been said about vouching the credibility of a stockbroker before handing your money over to them for investment yet, people still fall victim. One way of doing this is to contact the stock market regulatory body of your country and confirm that the stockbrokerage firm you are thinking of using. This process is even more important now that online stock trading have become popular thereby making it possible for one to perpetually deal with a stock broking firm that you have never met any of the staff.

QUALITY OF INFORMATION AVAILABLE TO THE PUBLIC

The public relation function of any company I want to invest in is one thing I take serious.

At this point, I would like to sound it to your hearing that all the skills you need to be a savvy investor cannot be acquired simply be reading an article like this, so I encourage you to read up other materials you find in this site and put the tips into practice and you will be glad you did.

To your happy stock investing!

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      pervaiz 

      6 years ago

      useful article

    working

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