5 Popular Types of Stock Portfolio
Beginner’s Guide to Investing in the Stock Market
Feb 24, 2022
Stock101
The Stock Market (also referred to as Equity Market or Share Market) is a public market where buyers and sellers meet for the exchange of equity and issuance of stocks (also called shares) of publicly held companies. Stocks are shares of ownership in a public company.
The stock market is an important part of every economy. It is an avenue for companies to access low-risk capital for development and expansion and gives investors access to become part-owners of a company and have a share of the company’s profit if the company performs well. As the demand for shares of companies increases, so does the price of their shares.
There are a lot of examples of the stock exchange around the world — most countries have theirs — some countries have more than one. These exchanges can either be physical or virtual; even with physical exchanges, most trades and transactions happen online.
The New York Stock Exchange and NASDAQ are the two largest stock exchanges globally, with an equity market capitalization of over 28 trillion and 24 trillion US Dollars, respectively. Both are in the United States.
The government control and regulates the market. They ensure that the market is fair towards those who will take part in the stock market and ensure fair pricing and transparency in the transactions.
How to Invest in the Stock Market
Investing is a way of committing your money or capital to work for you to make more money. As good as the idea of investing may sound, it also comes with the risk of losing your capital — this is true for all forms of investment, including investing in the stock market.
An individual can’t buy and sell directly on the stock market; it must be done through a stockbroker — these are mediators between buyers and sellers. They are financial professionals who buy and sell stocks and other financial instruments on behalf of clients and give financial advisory and management services.
Another way to invest in stocks is through stock brokerage companies that allow individuals to trade using their platform.
How Much Do I Need to Invest?
If you are looking to invest in the Stock Market, the good news is that you don’t have to break a bank before you do. How much you need to start depends on the cost of the share you plan to start with. You can start by buying just the share of suitable companies that are still valued at just $5 per one, or you can start with a four-digit share, like Amazon. It costs nothing to open an account with most brokerage companies online.
A newbie who wants to get practical knowledge of navigating this ecosystem at no cost can start by getting recommendations from experts.
What to Consider Before Buying a Stock
A lot of time needs to go into research to get good values. Analytical skills influence long-term success. Let’s say you’ve been able to put some money together to invest in stocks, and you are hoping to get a decent return on your investment. Then here are the things to consider before deciding what is worth your money.
The Health of the Company
The overall performance of a company is something that must never be overlooked. Growth in profits and values is germane — no matter how little. The company’s quarterly, bi-annual, and annual reports, management’s annual letter, and liabilities must be paid attention to. A healthy financial report often means they are in a stable condition — in operations, sales, and development of products.
Liabilities like debt must also be considered. All companies have debt, even the super-big ones like Google Inc — but a high debt level relative to income can be bad news for profit. However, the debt-to-equity ratio must be observed through the lens of the debt-to-equity ratio across the company’s industry.
Value of Stock
In the market, stocks can be overvalued or undervalued. If a company’s shares are worth more than its intrinsic value, it is overvalued; if it is worthless, it is undervalued.
There are several reasons why a stock can become overvalued. Sometimes there is too much hype around the company and its shares become overpriced as investors pile in. Other times, the company may be doing well, but its share price has run up too fast, and it’s no longer justified by fundamentals.
Whatever the reason, an overvalued stock is not something to ignore.
Company's Leadership
The leaders of a company are the decision-makers and, to a large extent, responsible for its direction. The leaders’ decision, to a large extent, determines; growth, innovation, stability, and the trajectory of a company. A well-managed company has a higher chance of success than one that is not.
Leaders make thoughtful and strategic decisions to steer their company in the right direction. This can be difficult at times, but you can always check the track records of those on the company’s board.
By making sound decisions and staying focused on the company’s goals, leaders can help their business thrive.
Before You Invest
Conclusively, if done well, investing in stocks is a good way to build long-term wealth. Besides expert knowledge and information on the stock market, one investor must have patience. Investing in the stock market is not a get-rich-quick scheme.
Besides stocks, an investor can also invest in index funds, mutual funds, and exchange-traded funds (ETFs).
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A staunch lover of the world's financial system and the Psychology of Money, Martins has experience writing about Cryptocurrencies, DeFi, and Emerging Tech. He is also an Interior Design and Product Design enthusiast.
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