Investing for Beginners
Investing for Beginners - The Fundamentals
When it come to learning a new subject, most of us simply do not want to study the fundamentals. If you look at the subject such as astrophysics, and then just looking at what is involved in that you will probably cool down your enthusiasm about simply jumping into it, because by the time you've read the basics on the subject, you realise it would take a great deal of time to master it. This in itself will lead you to proceed with greater caution and thought.
However, with investing it is simply the opposite that is true. It is so easy for anyone to get involved in investing their money on the stock exchange, and it appears so easy to simply buy them that many people jump in without a second thought. But doing this it means you are not considering the risks involved. It's a great temptation when you see and hear of so many people making huge amounts of money through what appears to be very simple investments. Although there are always going to be the lucky few who do make it like that, the majority of people who make profits through investing doing so because they have studied the fundamentals. Either you need to get the books out and start studying the fundamentals to investing or you can open up a ScottTrade account and get game within a few minutes.
Let's understand why a company issues stocks. Most companies normally start out as private companies that are privately funded. However, at some point, usually when they are starting to grow a bit larger and need additional investment then the board decides to make the company public. Public compnay means that any individual has the right to purchase shares in that company. There are two main methods through which this company can raise the capital required for their expansion or continued existence.
One method is through the issue of bonds that are normally provided as investments over a five to 10 year period with a fixed interest payment. That is normally 5% of what ever you invest. You will get your return on investment as well and seed capital at the end of the period of investment.
The second method is by issuing stocks. Stocks by nature are more volatile as there is no fixed percentage return on them. Then that you can also buy them and sell them at will; or at least that's the theory of it. When a company is issuing stocks, the total net worth of the company is assessed and then the equal amount of stocks are offered on the stock exchange. I'll give you an example: a company has a net worth of $14 million and they have decided to go public. If they are going to sell their shares for one dollar each. Then the complete share volume would be 14 million. In most cases when a company goes public, they offer shares in their company in return for liquid investments, ie your money. The owner of the business being an individual or a holding company will normally hold the greatest amount of shares with themselves so that they can retain control of the company, even though they are not complete owners of it.
Another thing to bear in mind is that when the company first goes public their shares will usually be at their lowest share price. And this share offering is known as their initial public offering, (IPO). This is why start-ups or new public offerings are a great temptation for investors, however, it is also an area where a lot of money can be lost if the company fails to turn that investment in to a real business growth.
Perhaps the last thing that you would want to understand about investing for beginners is how you can develop a sound strategy, where you can select companies to invest in and at the same time manage the risk. One very effective way of doing this is by using a simulated practice where you're able to invest and sell shares in a simulated way when none of your real money is at stake. This is like your practice round before putting your own money into the company. You can Actually download a free real-time stock trading platform through which you can develop and refine and tune your ability of risk management and stock selection. |
