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.
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