Have you ever wondered what stocks are and how you can invest in them? A share represents a part of the ownership of a company. Therefore, when you buy a share, you become a part owner of a company.
There are two main classes of shares: common shares and preferred shares. Ordinary shareholders have the right to vote on major company decisions, such as whether or not to merge with another corporation, and receive dividends determined by management.
Preferred shareholders do not usually have voting rights, but they do receive a minimum dividend. Stocks can be bought or sold, usually, but not always, in the context of a stock exchange.
So even if you buy a lot of stock on the stock market, you may not have voting power or a significant level of influence over company decisions, depending on the type of stock.
Investing in a stock is like investing in a business that is yours, you have to be aware (although with no responsibilities), you have to analyze its viability and profitability. Consequently, you should know and understand the business, and that way it will be easier to decide which stock to invest in.
What does it mean that the shares are equities?
When we acquire a share we obtain a property title. However, this does not guarantee a fixed profit. The benefit will be the result of the profits generated in a given period and will be distributed among all the owners of shares.
On the other hand, the value of the shares may vary according to the socio-environmental context.
Why are shares sold?
Companies are listed on the stock market to obtain financing for investment in new projects, or to pay debts. Entrepreneurs may prefer that people provide that capital and become part of the ownership of the company. Thus, they issue shares and put them into circulation in a regulated market. The advantage is that this forces companies to make their accounts public so that potential investors as well as shareholders can consult the information to value the company.
While the benefit of companies is that by going public they have greater visibility to large investors, they also have greater prestige. While clients have a greater guarantee of transparency and solvency.
How to analyze stocks and start investing?
In general terms, we can find two types of stock analysis, one is fundamental analysis and the other is technical analysis.
This consists of analyzing all the information that a listed company makes available to the public. From annual accounts, quarterly, semi-annual reports, to news published by the same company. The evolution of the sector, future perspectives and the evolution of the economy are also taken into account.
On the other hand, there is the analysis based on graphs of the behavior of the stock and the number of shares traded. From these data it is possible to make an assessment of the future price direction. This analysis is usually related to speculation and short-term trading.
However, it is also used to assess viable businesses. In addition, with this analysis it is possible to calculate the fair price to pay for a share and identify whether it is cheap or expensive.
Therefore, to invest in stocks, the ideal is to use these two analyzes to identify if a company can be profitable and when to buy.
As you will see, it is not very complicated to understand how to invest in stocks. Also, you don’t need that much money to start investing. Thanks to financial technology companies (fintech) you can start investing from $100. In other options you can invest from $1,000, which is a fairly accessible amount, compared to a few years ago where you had to have a million pesos to invest in shares.