Stocks And Shares
How to invest in stock and shares
Having shares of any company means you are an owner of that company to that extent. Whenever there is election in the company for director you have full right to vote which director you want to be appointed. You also have a right to attend Annual General Body meeting held once in year and you can also ask any question to the company. If the company is making profit, you will also get proportionate benefit.
Stocks can be classified in to different sectors. Wise investor put their money in stock as per trend of the market. One has to know which sector is in demand. And accordingly investment decision has to be taken; otherwise you may suffer huge loss by shares which are not appreciating. Some of the stocks are cyclical while others stocks are defensive. Cyclical stocks are those stocks which depend on price of the commodity. For example price of steel or copper increases then share price of the company which are related to these products also goes up. Cyclical stocks include sectors like commodity, capital goods, communications, power, financials, Information Technologies and Transportation. For example when technology market is active, the stock of Information Technology Company will tend to rise. Defensive stocks include utilities and consumer staples. These stocks are very safe because company usually do not suffer any loss. People dont stop using energy and eating. They provide a protection in a falling market.
There are certain factors which affects the price of the stocks. One of the most important factors is fundamentals of the company. If the company is having good fundamental the price of such company can not fall. Good fundament means company should have good business, should be able to increase their sales every year, their revenue and profit margin should also increase. Share price of such company will tend to rise. There are certain tools of fundamentals one should study it properly before taking the decision to buy the particular stock. You much check what Earnings per Share are. You can calculate earnings per share by taking the net earnings and dividing by the outstanding shares.
EPS should be more. It means that the company is fundamentally sound. The second important factor you should study is, Price to Earning Ratio (P/E) which will show the relation between the stock price and companys earnings. The P/E is most popular in stock analysis. You calculate the P/E by taking the share price and dividing it by the companys EPS. P/E = Stock Price / EPS. The P/E gives you an idea of what the market is willing to pay for the companys earnings. The higher the P/E the more the market is willing to pay for the companys earnings. But on the other side if the company is fundamentally not sound then investors never prefer such stock because the price of such company will fall and will lose their money. Second factor which affect the price of the share is economic condition of the country. If there is recession the country then the company can not do good business and these will have an affect on stock prices. Third factor which affects is government stability. -If the government is not stable then investor will not invest their money in stock market because under such circumstances the prices of all shares tend to fall.
When stock market is bad- When market is booming means prices of all stocks are rising. There is no problem. Every body is making money. Because investor have purchased the stocks at very low price and when boom time comes prices of all stocks tend to rise and when they sell at higher price they earn a good profit. But sometimes there may be problem also. It is not necessary that price will always go up only. There may be a correction, at that time investor has to be very wise and they have to sell their shares before they suffer heavy loss. Here time plays very important role. You have to observe market trend very closely. Then only you will be winner. Otherwise you tend to lose money.
It is always a best idea to study the companys report properly before investing money in stocks. One should take the trouble of reading companys annual report and financial statements. And one must know how to read companys Balance Sheet, Assets and liabilities of the company. A person who knows all these things will take correct decision whether to invest money in a particular company or not. Once you do all these home work then your chances of losing money is almost negligible. This is not enough after studying companys report thoroughly, you should also know at what price you should buy a stock of a particular company. If you but at a very high price that will also be very risky.
You should also see the valuation of the price. You should wait for the correct price and then only you buy stock of that company which is fundamentally sound. There are certain financial terms you must know before investing in share market. Financial terms like Earning per share which means the amount of profit to which each share is entitled going public; which means when company is planning an IPO which in turn is a Short for Initial Public Offering. An IPO is when company sells its share for the first time. Market Capitalization: The amount of money you would have to pay if you ever bought a share of stock in a company. You can calculate Market Capitalization by multiplying the number of shares by the price of the shares.
You should consider many factors before investing in shares. In spite of that also nobody can give guarantee that one will get success in share market. It is always a risky to invest money in market.
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