By Alfred Chai Wei Liang
What are stocks? They are commonly known as shares or equity or property. All the related terms do reflect the meaning of stocks. When you buy a stock, you are practically buying a part of a company and therefore owning part of the corporation yourself. Stocks are able to go public through initial public offering ('IPO'). This means the general public like you and me can buy and own a certain company for a specific price. Welcome to stock trading.
Where to buy? For citizens of United States of America, they buy stocks at New York Stock Exchange ('NYSE'), American Stock Exchange ('ASE') or National Association of Securities Dealers Automated Quotation system ('NASDAQ'). You can even trade stocks from other over-the-counter markets. Note that stock exchange centres differ from one country to another. For example, for a country like Hong Kong, it is called 'Hang Seng'.
How can you benefit from stocks? They generally follow the economy. If economy is good, then prices of stocks will rise too. Therefore, this will earn you greater profit. Some companies or stocks issue dividends too. Dividends are earnings from the company that is distributed among all shareholders (you are one of them). Usually, dividends are paid quarterly in a year.
You also need to be aware of a ratio called price to earnings. This ratio, 'P/E' will determine the level of stock prices relative to the earnings of the company. For example, a ratio of 10 means that stock prices per share (on average) are selling at about 10 times the earnings per share of the company.
Virtually, almost every companies in many different industries issue stock. But some other companies are privately held. This means that they have elected to hair their stock owned only by some management members and a handful of other investors. These companies do not publicly trade their stocks at the stock exchange centre. Therefore, not everyone can buy any companies.
What is market capitalization? It simply means the value of the outstanding stock (the number of total shares multiplied by the market price per share). You will always hear the terms big cap and small cap. Big capitalization means large value of the outstanding stock.
How much profit can you make from the stock market? On average, stock markets can give you a rate of return of 10 percent. But you have to be aware of all the fluctuations given in the many short periods of time. As a rule of thumb, if you can invest in stocks the way you invest in bonds (long-term investing), then you should invest in stocks anyway. Investing via a short-term mindset is not suitable when it comes to stock exchange.
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I have a web site where I research penny stocks and stocks under five dollars. I have many years of experience with these type of stocks. If theirs anyone thats interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment about pennys stocks. I would recommend that the novice investors avoid those stocks that trade under 1 dollar on the over the counter bulletin board and pink sheets. these stocks are of very poor and very very speculative. I would instead recommend that investors in penny stocks stick with stocks that trade on the new york stock exchange or nasdaq. their rare exceptions when a stock under 1 dollar can be very profitable. I purchased a stock called overhill farms 14 years ago for 25 cents a share today the stock trades at 6 dollars a share and I still own the stock.
ReplyDeleteWhat about buy and hold not forever but it could be for some time. Their are some stocks an example petsmart that traded at 2 dollars a share 11 years ago now the stocks almost fifty. Another stock is pricesmart it traded at about 7 dollars a share about seven or eight ago now its almost around sixty dollars. Their are many other examples Apple computer traded ar only 5 dollars a share in 1998 now its over 400. These stocks are being held quite a long time generally speaking I would say four to six years would be about right as far as buy and hold go. I have a website where I have been following stocks under five dollars. I generally hold my stocks anywhere form 2 to 6 years.
ReplyDeleteBuying stocks and selling on right time may be a good and rewarding business. At Paradigm Capital Management we are always ready to help the new players in the market.
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