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Stock Market for beginners

Updated on September 15, 2015

Stocks are an equity investment that entitles part-ownership in a corporation and you are eligible to a part of that corporation’s earnings and assets. Stock is usually also referred to as paper assets, because in the past shareholders received stock certificates in paper and had a security verifying ownership and number of shares; however nowadays share ownership is recorded electronically.

Many wealthy people own shares in companies however this is no coincidence. It requires a lot of keenness to thrive in the world of stock investment, as it has seen some create fortunes and others loose fortunes as well. Investing in healthy stocks is one of the best methods to create independence, financial security and generational wealth.

There are several types of shares however the main ones are common stock and preferred stock. Common stock represents equity-ownership in the company and gives the shareholders, the right to vote on management issues at their annual meetings. Common stock which is sold by many companies has potential for higher returns and investors buy it more than preferred stock. Most investors go for common stock as they are interested in price appreciation. Preferred stock are mostly aimed at earning through dividends, usually they do not fluctuate as much as common stock. Many risk averse investors favor preferred stock as they are more stable. If a company goes bankrupt preferred stock holders have claim to assets ahead of common stock holders however preferred stock holders have no voting rights.

Before investing in stocks it is important to take some personal factors into consideration. Firstly you need to look at your goals, aspirations and the experiences you want in life. Having a list of what you want will help you establish goals for investment and savings. It is also important to set your financial goals. You must understand why you are investing, in order to structure an investment plan. It is also important to evaluate your ability and readiness to take risks.

It is also important to analyze the financial position of the company where you are going to invest.

Under this dimension you should consider two factors; horizontal insight and expectations. Horizontal analysis can be described as analyzing a company’s income and loss statement data over a certain period of time. Horizontal analysis over time is very valuable, for example you can notice a downward trend (making continuous losses over time) or an increase in the profit margins. Another consideration is analysts and company management make predictions about the company’s income so as to give investors an idea of the future. Though these predictions are not very accurate they give a rough guide on what to expect. It is important to look at the income statements of various companies you are prospecting to invest in, after all stock prices reflect what a company brings in. Also look at trends in various sectors for example energy, mining or insurance.

After you have considered the many factors and decided to proceed with your investment plans you need to get a broker. People should be very careful when choosing brokers. The broker can then lead you on to open an account, for young people (below 18 years) their guardians setup custodial accounts for them. Now all that remains is to buy stock and execute trade. Speaking of executing trade you can buy, hold and then sell when your stocks have gained value or wait for dividends. The actual time to execute trade varies from one broker to another but it’s instant in most cases such that you do not notice a big price difference between the time you place your order and when it is executed.

Finally you need a strategy so as to earn from the stock business. It depends on your goals for example if you are cool and collected you can take on long term investments however most people prefer buying and selling when the value goes up. You also need to keep researching and have as much information on upcoming trends.

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