Hope you read the earlier post on
the Stock Market - Course 1
Let’s now move on to the Course 2…….
So, What Are Stocks?
I do not want to complicate things
and like to give it to you straight. I am not into the whole textbook thing -
what with all the jargon and formulas. Let’s keep it simple. Today, you're here
to learn about stocks. And learn about stocks you will...
So, what are stocks anyway?
A company is made up of
thousands, hundreds of thousands and even millions of small
pieces of ownership, called shares. Management, employees
and outside investors can buy shares in companies they believe to be GOOD
INVESTMENTS.
Like an investment pizza pie,
each share represents a percentage ownership of the entire company. Shares are
also commonly called equity.
When companies are publicly traded
on a stock exchange (typically only the largest of companies do),
shares become known as stocks. Through the stock market, investors
can buy and sell their ownership stakes in companies to one another.
Did you know?...You just covered
13% of all what want to know about stocks, read on…..
You'll learn:
·
more about what stocks are
·
why companies sell their stocks to investors
·
how investors stand to gain by buying shares in companies
Case
Study: Who Owns People’s Insurance?
To understand more about how stock ownership works,
let’s take a look at People’s Insurance as an example. When People’s Insurance
was a private
company (before
it entered the public stock exchange) it was totally owned by People’s Leasing
and Finance Plc, owning 150 million shares totaling 100% of the shares issued.
But when they went Public, and gave 50 million shares
to the Public, a lot of investors managed to own bits and pieces of the Company
other than the Major Share Holder. The following lists show you how it was then
and now:
Before going Public
After going Public
This means that the shares of the company were
owned by one entity i.e. People’s Leasing and Finance Plc before. But when People’s
Insurance went public in 2016, it allowed any
and all investors to own small pieces of the company in the form of stocks.
The takeaway here is: owning a company’s stock is like being a
partial owner of the company itself.
We have covered 25% of getting to know about a
Stock so far.
The
Case for Owning Stocks
Ok,
so you get what stocks are. But why are all these people putting their money in
stocks? Why would you want to own a piece of a company?
Well, the answer is pretty simple. There are loads of
investments out there – many of them good. Bank deposits, bonds,
gold, and real estate have all
performed well throughout history, but nothing (and we mean nothing!) has performed as well
throughout history as stocks.
Don't believe us? We'll show you...
93.00 invested
in the Cheveron Lubricants on the 2nd of January 2009 would be worth
over 636 at the end of 2016 plus 279.50 received as dividends, and the 1 share
bought is now 4 shares due to splits . As your stock holding from 1 share to 4 shares you have
earned a massive return of 884% for 7 years or 126.3% per annum. Just take a careful
look at the chart below:
So that's one reason why you
should invest some money in stocks...but not the only reason.
Why else should you invest in stocks?
·
It's easy: INVESTING IN STOCKS is easy. Real
estate has also proved to be a good investment over the long term, but there’s
a reason it’s called sweat equity:
it’s hard! We’ll show you just how easy it is to research and buy stocks.
·
It's cheap: With online investing, you
can buy and sell stocks. Even the cost of professional advice is zero (think
about it...even this lesson your reading right now is FREE!). here's no
minimum
·
investment: Unlike investing in real
estate or private companies, there is no real minimum investment requirement
when investing in stocks. That means everyone can get in on the action.
·
You (can) get free money for retirement: The above
chart shows you how the dividends can earn you free money when you retire. Especially
if you plan to enjoy a comfortable retirement.
·
You get tax advantages: The fee
imposed in the transaction cost is so innovative, that only some stupid guy
would change it.
Given all this, there is probably no better way to grow your
assets over time than partly through the stock market.
38%
covered thus far keep going……
How to Make Money Buying Stocks
Stocks are the best way to grow a small investment into a much
bigger one over time.
There are 3 ways you can earn money when
buying stocks:
1. Your stocks go up in price
·
If you buy a stock at 10 per share and it goes up to 20 per
share, you’ve doubled your money (on paper, anyway -- you’ll need to actually
sell the stock to lock in your profits). These profits are known as capital gains. Over the long term (like 10 -
25 years), the stock market tends to go up, especially due to the Countries potential
for development and economic growth.
2. You get paid to own stocks
·
Many public companies pay out a quarterly or yearly dividend to the owners of their stock. They do this in order to share
their profits with investors. Sort of like a "thanks for believing in
us" gift. It's not uncommon to make 2%-5% or more like in the above chevron
example per year on an investment in a stock, just by collecting dividend
payments. You own the stock? Pass ‘Go’ and
collect your dividend. It’s that easy.
·
Companies
Split shares into 2 more times. So when you own 1 share and the company splits
it into 2 times on 2 occasions your 1 share becomes 4 shares( 1 splits into 2 =
2, then again splits into 2 =4 like the above chevron case)
So, your total returns from
owning stocks will be based on both capital gains (your stocks
going up in price) and dividend payments (you getting paid to
own stocks). And when the share gets split both CG and Div is paid or the total
shares you own.
A Little About Risk and Stocks:
·
In the SHORT term (say, less
than a few years), it’s entirely conceivable that your investment in a stock
could be worth less than what you paid for it. Bummer, but that’s the way the
market works: it rewards long-term investors.
Stocks can go up and down a lot during the course of that time.
·
With the potential for growth comes risk (risk and return are
two sides of the same coin).
·
Stocks are certainly risky, too. But for patient investors, this
risk typically pays off.
50%
covered do you want to go the next half? Read on won’t take you long…..
Buy Your First Stock
With more than 200 companies trading on the stock exchange, it’s
hard to know where to begin.
Good thing famed investors have simplified this early decision
making for us...
They say to buy what you know. By
buying what you know, they recommend that investors begin buying
stocks for their portfolios by starting with their interests.
This idea of 'buying what you
know' has 2 main benefits:
·
People make money in the stock market
by knowing more than the next guy. If you've got more
information or knowledge on a subject, chances are you're going to make better
investment decisions when it comes to these sorts of stocks over others. If
they are in fact better decisions, the stocks' prices will eventually reflect
that. And you'll make money.
·
If you're following stocks of
companies you're interested in, you'll have an easier time keeping up with the
news you need to keep yourself informed. If you're
really into Banks, reading about healthcare stocks won't be as interesting as
seeing what Com Bank and Sampath have
been up to lately. As with most things in life: if you're having fun with it,
chances are you'll do better.
2 STEPS TO PICKING YOUR FIRST
STOCKS:
·
Start by looking at yourself: In order
to buy what you know, you got to...well...know yourself. Start
by taking a good hard look at the things you're passionate about. Are you
spending more and more money on something in particular? What consumer trends
are you following? Do you have any hobbies? Play sports? What industry do you
work in?
·
Buy stocks that match your
interests: Find suitable stocks that match your interests, spending
habits, or business experience. Why wait any longer? Let's do that right now...
63%
done, only the last few steps, go on……
Is one
Stock enough
One
stock just isn’t enough. No successful sports team has one player at each
position—they have multiple people with star potential to step up if someone
gets hurt.
The
same goes for your portfolio. You need multiple stocks to prevent
catastrophe from having its way with your investments. If one investment fails,
hopefully another part of your portfolio will be rocking its way upwards making
you money and softening the blow of that dud investment.
Diversification
Of
course you are familiar with the saying “don’t put all your eggs in one
basket”. Well the same goes for your portfolio. Holding a diversified portfolio
will lower your overall risk.
Here’s
an example:
Imagine
your entire portfolio is made up of 100 shares of Commercial Bank. Presently
the Banking Sector is going through some tough times. This will, of course,
hurt the value of your investment. Because your portfolio is made up of 100% of
Commercial Bank stock, you are going to lose a lot of money.
If instead your portfolio is made up of a smaller
percentage of Commercial Bank, as well as small percentages of stock in Access
Engineering, The Construction Company, and Alumex and so forth. When Commercial goes through
the rough, only a small percentage of your overall investments take a hit,
rather than the whole thing.
Now you are well on your way to a diversified
portfolio of stocks.
The course about knowing what Stocks are is complete……..Let’s
meet for the Course No 3 soon
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