Basic guide for stocks and shares
Investing in shares is easy and fun. Owning stocks gives the average person a chance to own a piece of a business without owning the entire company. Let’s say you love McDonald’s, you can own a piece of the company by simply buying shares or stocks of that company. You can buy one share of stock or thousands. It all depends on how much you’re willing to risk and how much your have to buy stocks.
Let’s say you open an account with an online broker and deposit $1,000.00. You can go online and simply buy McDonald’s stock by entering the stock symbol (MCD) for McDonald’s Corporation, the numbers of shares you want to purchase (not exceeding the $1,000.00) and submit your order, it’s that simple. In a matter of seconds your order will be filled or complete. In addition to the purchase price you need to pay a commission for the transaction. Your commission will vary in price, but they average anywhere $5.00-$15.00 per transaction.
You have immediate access to your information online whenever and wherever you want it. I will explain in more detail on how a company is able to sell to the public in another section, but for now just know that you can own stock of any company you want as long as they are traded publicly.
To invest in shares one of the first things you can do is open an on-line brokerage account, an account you can manage yourself. It’s like managing your check book, but a bit more sophisticated, it’s easy. It doesn’t take one to be a college graduate or a finance executive to buy shares of a company. A lot of people do it, but not enough. One has to be careful because there are certain rules or methods to invest in a stock. We’ll cover some of those in these pages.
Every day millions of shares are traded in the US Stock Exchanges (NYSE, Amex or the NASDAQ) as well as many other exchanges throughout the world. We live in a global economy where we can buy shares of companies in other countries quite easily on a 24 hour basis. Let’s examine few categories related to investing in stocks.
Growth Stocks are high flyers. They grow much faster than ordinary companies. The concept is very easy and it involves the purchase of shares in companies that over the years will increase earning and dividends faster than the market in general. Microsoft is a great example of a growth company in the early 90′s. Microsoft had the ability to re-invest it’s earnings back into the company for further research and development (R&D).
To invest in growth companies one has to be patient because the companies can be volatile and risky. The price of the shares can go up fast, and come down just as fast. Emotions play an important part here, but be patient and invest in growth companies with a time horizon of a few years. Investing in stocks whether growth or value is a sure way to build wealth.
A value stock tends to trade a lower price relative to it’s fundamentals. The earnings, dividends and sales are good, but the market doesn’t seem to notice it so it’s undervalued. These are the hidden gems that exist in the market. Warren Buffet who studied under Benjamin Graham at Columbia University loves these types of companies because they are good investments, but grow much slower than growth stocks. However, an investor will buy these stocks in anticipation that the stock will turnaround and increase in price.
Value Stocks are very good for the long term investor and should be part of your investing strategy. It is important to remember that these stocks will not grow as fast, but you can depend on them for good solid returns the longer you hold on to them.
Investing in shares is great, but one has to be careful when investing. There are taxes to be paid when you sell your stocks,