Investing money in stocks is seen to be the quick ticket to be rich. Well, it is and it is not. Historically, stocks have been a very good way to invest money. The returns are healthy in the long run, and consequently return better than other ways to invest like in bonds etc. But there are risks to it too. Many people see investing in stock market as a form of gambling. It certainly is not. So, how do you get started with stocks?
Before you withdraw money from your account and invest in some XYZ company’s stocks, take a pause! Stocks are complicated entities. The only way to make money in the stock market is to understand it well. In your free time, learn a thing or two about the stock market. Learn how it works. First of all, learn the definition of a stock. It all might seem as if you are back to school and taking a class in economics, but hey, that’s the way it goes. Basically a stock is a certificate, which gives you a share of the company’s net worth. So, if you buy 10% share of a company and the company is worth $10 million and then you own $1 million. Of course, you would have to invest $1 million to actually own 10%, but as the company performs well, its net worth will go up, and so will the value of your shares.
How does a company’s worth go up?
This is where things get complicated. A company usually starts with the investment from certain number of people. Then if needs money, it makes something called IPO, initial public offering. Suppose the company offers 10000 shares, and is worth $100, then it values itself at $1 million. Then, people start buying. If many people start buying the shares, the prices would go up, because less number of shares would be available for sale, and one who pays higher would own it. So, it’s basically a demand and supply game.
The most important thing
The thing that would make money for you in the share market is knowing where to invest i.e. which companies are worth investing in. You can’t go after shares which are priced very high. The reason is very simple. You would have to invest a lot of money to buy small number of shares. So, even if the growth is steep you won’t gain a lot of money due to that growth. Instead if you buy shares of a company which is not priced very high, you can buy a large number of them and hence your profit when the prices increase. So, you have to look for companies which have the potential to grow.
There are other details regarding share market, like where you buy it and how you buy it. These things are easy to get through, but the problematic part is to identify whose shares to buy. So, to get started with stock market, work towards learning the market dynamics.