A speculator in the Wall Street stock market who mostly
spent his time sipping wine and reading different newspapers was admired by
many. They wondered why a person who was among the wealthiest in his time was
so reluctant to adhere to fashion. I mean, buy a better car, order some suits,
some gold rings. Why earn so much and spent so little on you. He was always in a
short and an oversize T-Shirt; his car was not that expensive. Much of his
wealth he spent on holidays at different first class destinations across the world
with his shorts and a newspaper. In an interview on T.V captured while he was
on holiday at Seychelles, the interviewer asked him lightly,
“Why this shorts, the old car that looks odd in your home,
why are you too blind to fashion?”
What is a stock market that I keep hearing in the news
anyway? After business news every evening, there is normally a session during
which many of us try changing channels to avoid those tedious figures showing
different share prices. Contrary, serious investors who have kept their gold
mine in the stocks are ever watching these prices. Warren Buffet has made his
wealthy in the stocks. People who invest in the stocks are careful risk takers
and intuitive speculators. An understanding of how the stock market operates is
essential to anyone who might want to invest in it. Here are some of the basics
of the stock market that you need to know.
Stock market is a market for selling and buying securities. A
security in this case refers to shares, bonds, and debentures. Here is the
thing, if a public company wishes to raise more funds; it can do so by
borrowing from us or selling ownership to us. If you buy a share of a company
at a given price, this piece of paper you get after giving your money is a
share certificate. It entitles you to partial ownership of the company with other
shareholders. It means that if the company makes a profit, you are entitled to
some of the profit. Therefore, the profit is divided among the number of shares
and what you get is a dividend. The other securities, which include bonds and
debentures, I will discuss in later articles. A bondholder is like a creditor
to the company.
One can earn income from investing in shares by two ways. One,
which is less risky, is by buying shares from of a company and waiting until
the end of the year to get your dividend. If the company makes a loss, it means
you will get nothing in return. The more shares you buy the more share of
profit you will get. The second means, which has been adopted by people of
greater minds, is by speculation. A person who buys during plenty of harvest
and sells during scarcity when the price of grain is high is a speculator. In the
same sense, a stock market speculator other than foreseen a scarcity foresees a
profit, or a factor unknown to all that will rise the share price for a
specific company in the near future.
Speculation is a risky undertaking especially in the stock
market. There are actually too many factors to take in to consideration before
placing your money on a certain company’s shares. This is because; the price of
a share, like the price of any other product is determined by interaction
between buyers and sellers. If many investors want the shares of a particular company,
its share price goes up and the vice-verse holds. Speculation involves buying
when the price is low and when it goes high you sell. Unlike in the product
market, the stock market is excessively sensitive to information. As such,
speculators and large buyers have occasionally given false information to
mislead small buyer speculators. It is a dangerous game, which requires
exceptional wisdom to interpret different pieces of information.
For beginners, one had better start with the less risk means
of investing. However, this less risk involves some wisdom. It calls for judgment
of which of the many companies in the stock market will make a profit at the
end of the year. It occurs mostly in normal years that many companies make
profits. Assuming this as true, even at random the chance of picking luckily is
higher. You need however to eliminate failing companies not unless you are
convinced something will in the course of the year turn things for the better. Fast
growing companies make more profits but most of it is ploughed-back minimizing the
dividends. Mature and stable companies offer more certainty. Whichever way you adopt
to invest in the stocks, be sure you one of those who love to read. You must
accept to read vast volumes of information and interpret it accordingly. The return
in the stock market is surely worthy this sacrifice.
Post a Comment