Stocks

 

What is Stock Market ?

A stock market or exchange is the center of a network of transactions where securities buyers meet sellers at a certain price. A stock market or exchange is not necessary a physical facility and with the advancement of information technology are increasingly rare those traders that exchange their stocks in the floor of a major stock exchange. The main stock market in the India is Bombay Stock Exchange (BSE), National Stock Exchange (NSE)  

You may have heard stocks referred to as equities or securities. The reason they're called equities is that you purchase an equity, or ownership, share of a company. Stock is also called a security for the same reason, because you're securing a share of ownership in the company. That's right; you'll be a business owner just like you've always dreamed!

But, as you know from everyday life, there are terrifically run businesses and there are businesses that make you say, "I'll never go back there again!" How do you know the difference before you buy the stock? That's what this guided tour will be teaching you.

So when you buy stock, you become part owner of the company -- maybe only a very small part, but still an owner. The size of the part you own, by the way, is irrelevant to your personal objectives.

What is  Common Stock ?

Common stock, which is sold by most companies, is the only "pure" form of stock in the market. It's what people are talking about when they just mention "stocks." Because common stock has the potential for greater returns, investors buy it more often than they do preferred stock.

Common stock represents an equity ownership in the company and entitles shareholders the right to vote on management issues at the annual shareholder's meeting.

Common stockholders may, or may not, receive dividends, depending on management's decision about distributing profits.

Many beginning investors believe that preferred stock is better than common stock, but that's not necessarily the case. Your decision to purchase one over the other depends upon your financial goals, your tolerance for risk, and your interest in voting rights in the company.

Because most investors are interested in price appreciation, they usually purchase common stock. You get more "bang for your buck." It's that simple -- and so is our goal for you: to get the returns you need to fund your dreams. That's why we wrote this guide.

So, from this point on, whenever we refer to "stock," we mean common stock. A little later, we'll begin to learn about specific kinds of stocks that are best for you, such as growth-producing or income-producing.

How Do You Make Money Investing in Stock?

There are two ways to earn money when you invest in stock: price appreciation and dividends.

If the company you invest in does well and makes money, its stock becomes attractive to own, and soon more investors will want to own some of the company that you own. That's when supply and demand works in your favor. The greater the demand, the more the price is driven up. The price moving up (because more people are buying the stock) is known as price appreciation -- your stock increases in value. You'll realize a profit, or gain, when you sell stock that has appreciated.

Say you buy stock for  Rs. 100 a share, and it grows, or appreciates, to Rs. 150 . Smart you! You earned Rs. 50, and the value of your share of stock increased, or appreciated, by 50%. The flip side of that is price depreciation, which is another way of saying that the price of a stock went down.

In addition to the potential price appreciation, or attractiveness, of your stock in the public's eye, you can also earn a dividend when you own stock.

Distributing dividend payments is another way for a company to share its profit with you. This means that each quarter the company pays you a certain amount of money for each share of stock you own. Usually dividend payments are much smaller than the price of the stock. For example, a company whose stock price is Rs. 150 per share might pay a dividend of  Rs.4  per share each year.

Many times, dividends come at the expense of greater price appreciation, because the company is distributing its profits to shareholders rather than reinvesting these profits back into the growth of the company. However, companies that pay dividends can be very attractive to investors, because they offer a steady stream of income. Whichever you pick -- current income (dividends) or longer-term growth (price appreciation) -- as your priority depends on what you need

 

Click here to know more about stock market investments and individual stock tips

 

 

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