Stock market investing is an exciting capital producing venture for any new entrepreneur as well as any other person interested in the risks and rewards of high-stakes investing. Be warned however that such ventures aren’t for everyone and stock market investing has its own set of financial hazards one should be aware of.
And further more given that risk should one invest in them?
But before we get any deeper into the minutiae of the topic let’s start with the basics: what are stocks and what is the stock market? Stocks, simply put, is the share of the ownership of any business; shares (also called equity) being defined as a unit or percentage of ownership of a corporation or other financial asset. Purchase of a stock entitles the purchaser to profits, though not direct control, of the company they purchase stock in.
The stock market (or equity market) is a place where people exchanged stocks, but generally refers to the worldwide trade network of privately owned stocks as well as government bonds.
Now why do people trade stocks? Companies will often sell stock in order to relieve the financial burden of starting or maintaining a business.
When businesses sell stock in their company the incentive for investors to buy is the potential to receive a percentage of profit equal to the percentage of stock they purchased. This profit may be returned to investors in the form of dividends, or portions of a businesses acquired capital, or more often these dividends may be reinvested by the business to increase in value.
For example let’s say I buy twenty-five thousand dollars or one quarter of a company which needs one hundred thousand dollars to start up. My stock will, if the business is successful and is worth say two hundred thousand dollars in six months time, increase in value to fifty thousand dollars. These stocks can then be redeemed for cash called capital gain.
Keep in mind capital gain is the desired outcome of stock investment and is defined in this context as an increase in value of an asset. Most stocks earnings however aren’t as dramatic as this and often incur risk; risk being defined as the loss of a financial investment.
Now where are stocks commonly traded? Given the advent of the internet stocks are traded almost everywhere but stock exchanges are concentrated in a few places, both real and virtual, like New York City. Another place stocks are commonly sold would be through the decentralized NASDAQ. Through NASDAQ dealers will offer a bid or proposed price for a stock while a buyer may counter with or negotiate to an ask price for a stock.
Bear in mind these are only the bare bones basics of investing in stock. There’s a great deal more to be covered which we have resources available, but this introductory primer here should give you a basic idea of what stock is and how stock markets work.
Should You Invest?
Now onto the million dollar question: should one invest in stocks? Is it a means to accumulate immense wealth or is it a complete crap shoot? Yes. Yes, in the sense that stocks can be extremely profitable to those who know what they’re doing, and do it well. Yes also, in the sense that it can also be a complete waste of time and money even if you know what you are doing, but don’t invest properly and run into ill fortune.
In other words there is no right, same answer for every individual. Stock investment is for those who have a curious combination of a love for numbers and analysis, but also are quick witted and fearless. So should you invest in stocks? It’s an answer only you can give.
Ray Barros | Trader Interview
Forex trader & all round Montrealer good guy Etienne Crete interviews Fund Manager Ray Barros in Hong Kong 2019. Ray Barros has been in the trade for around fifty years???? well worth a listen good people.
Etienne says “If you truly want to succeed in Forex trading, I believe you need to keep working on yourself so you can improve your strengths, but also your weaknesses. Do not focus solely on what you’re good at.”
* * *
Note: The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment… so please as always work smart, Bob.