Today we are going to
have a slightly different blog post but hopefully helpful. I've been actively
investing in the stock market for almost eight years, and I started from the
ground up.
I had no notion what the
stock market was, how it worked, or how you could gain money by investing in
it.
But after reading a few
books, taking a few courses, and risking my cash to invest in the stock market,
I've learned a thing or two about the stock market, and I'd like to give you an
introduction to the stock market in this blog post.
I'd like to share my
stock market expertise with you, as well as what you should know if you're just
getting started.
This blog post is for
beginners, for people who are just getting started or who are curious but don't
understand how the stock market works.
I'll do my best to answer
any of your questions, so please share and like this blog post, and let's get
started. To comprehend the stock market, you must first comprehend the concept
of a stock.
Companies need to raise
funds in order to grow and expand. You can't get very far if all you have is a
concept and no money.
So, one way for a start-up
to get money is through family and friends, or through an angel investor, a
wealthy individual with a lot of money, experience, and connections, or an
institution that sees the potential of an idea and invests, but in exchange for
a stake in the company.
Consider this: you've
developed a little firm that doesn't make a lot of money, but you may sell a
portion of it to raise money and expand by, say, opening another store or
acquiring more clients, whatever technique you choose!
The point is that you
sell a piece of your firm in order to expand the pie.
You will now own a lesser
portion of the pie, but a smaller portion of a much larger pie is always
preferable to a larger portion of a small tiny pie.
The point is that you
sell a piece of your firm in order to expand the pie.
You will now own a lesser
portion of the pie, but a smaller portion of a much larger pie is always
preferable to a larger portion of a small tiny pie.
So, what do businesses
do? They divide the business into a large number of stocks. Let's pretend the
corporation is divided into 100 stocks to keep things easy.
Each stock is worth ten
dollars, giving the corporation a total value of one thousand dollars. So, if
you spend $100 on 10 shares of this corporation, you will own 10% of the
company. Simple? Right?
However, these
corporations grow so large that they are unable to separate them into 100 or
1,000 stocks.
As a result, the
corporation is divided into millions, if not billions, of stocks. Apple stock,
for example, has a market capitalization of nearly 16 billion shares.
By the way, shares and
stocks are the same thing. The stock market is where these businesses can sell
their stock to raise funds to grow their operations.
If you want to buy an
iPhone, you must visit the Apple shop; but, if you want to buy Apple stocks,
you must visit a financial market such as the stock market.
The Nasdaq, the New York
Stock Exchange, the London Stock Exchange, and the Hong Kong Stock Exchange are
just a few examples of markets.
There are many, but
here's the problem: in order to be qualified to buy stocks from any of these
financial markets, you must be a member of that stock exchange, have a licence
that allows you to trade stocks, and meet a number of other criteria, which
makes it difficult for ordinary people to do so, which is why brokers exist.
A broker is a person who
has the necessary licences and is a member of the stock exchange, and he will
acquire shares on your behalf.
It could be a person, but
it could also be a corporation or a financial institution. Today, however,
brokers have evolved into apps that make it simple for anybody to buy and sell
stocks, such as Robinhood or We bull.
Robinhood may appear to
be a simple app to you, but it's actually a large broker that has made
investing easier by producing an easy-to-use software.
So, anytime you buy a
stock through Robinhood or We bull, buys it on your behalf. That's all there is
to it.
So, having a brokerage
account is the only method to buy stocks. The question now is, why should you
invest in stocks?
How do you make money on
the stock market by purchasing stocks? Isn't
this all a ruse? Remember how we discussed owning a smaller piece of a larger
pie?
In a nutshell, that's the
idea. Let's pretend you own 10% of Apple and your 10% is worth $1 billion.
If Apple expands, sells
more phones, and attracts more consumers, the company's value will rise as
well, and your 10% stake, for example, will be worth $2 billion instead of $1
billion.
In fact, you can cash out
by selling your apple stocks to someone else in the market who is willing to
pay that price (2 billion).
The stock market is separated
into two sections: secondary and primary. When a corporation sells its stock
directly to the public for the first time, this is known as the primary market.
In 2012, Facebook went
public, and I purchased some Facebook shares straight from the company for 38
dollars per stock.
Since then, Facebook has
grown at an exponential rate. Users have increased from a few hundred million
to over 2.8 billion.
Instagram, which has over
a billion users, was also bought. It has bought WhatsApp, which has a user base
of over 2 billion people.
Because the corporation
has become so large, so has its value. At the time of writing, my single
Facebook share has increased from 38 dollars to 324 dollars script.
The stock has increased
by 750 percent in value. I can sell it for 286 dollars to someone else on the
stock exchange (324-38) dollars.
Of sure, one stock won't
make much of a difference, but what if I invested $100,000? Do you have any
Facebook shares?
I would have made a total
of $28.6 million. But why would someone else pay $324 for my stocks?
It could be because
someone else believes the stock will increase in value for whatever reason. Of
course, you have the option of simply holding your stocks or selling them.
They are yours. You have
command over them! Buying portions of a firm called stocks and reselling them
for a higher price is essentially how you make money on the stock market.
You can also earn from
the stock market if the company shares its gains with you.
If you operate a grocery
store, you will hopefully have some money left over at the end of the month
after paying all of your expenses, from water to inventory to labour, and you
will pocket it.
The same may be said for
these businesses. If the company makes a profit at the conclusion of the
quarter, it distributes money to its shareholders or owners.
You will be entitled to
more earnings if you hold a larger percentage of the company. Dividends are the
term for this.
If you Google any stock,
such as apple stock price, you'll learn that it has a dividend yield, which in
the instance of apple is 0.67 percent.
That implies Apple pays
0.67 percent, or 0.87 cents, in dividends for each stock you own.
I know that's not a lot
of money, but you have to understand that stock prices have risen dramatically
in the last year or two, but dividend rates can't keep up.
Apple used to pay 2.5
percent in dividends before the epidemic a few years ago. However, not all
businesses are eager to share their profits because they utilise the money to
expand their business.
So, in that scenario, how
do you make money? Purchasing at a low price and selling at a premium price!
The question is, how can
you tell if a stock is likely to increase in value? How do you know if, for
example, an apple will grow in the future?
Supply and demand are the
primary factors that influence stock prices. The stock price rises when more
people are willing to acquire a certain stock.
If Airbnb begins to
develop too quickly, either by expanding into new countries or by producing
large profits, more investors will want to acquire Airbnb stock, driving the
stock price higher.
To determine whether
Airbnb, for example, will expand, you must first comprehend its business model,
analyse its financial accounts, and determine how it intends to expand further.
We won't go into detail
about how to examine firms because it would take too long, but if you're
interested, we'll cover that in a future blog article.
Essentially, the goal is
to determine the company's true value and compare it to the current stock
market price.
It's a good investment if
it's undervalued; it's a bad investment if it's overvalued.
These aren't the only
strategies for profiting from the stock market. There are many other ways to
benefit from the financial system, such as shorting a company, purchasing high
and selling cheap, or buying when the stock price rises and selling when the stock
price falls. I realise it sounds hard, but there are tools that can help you
benefit in this manner.
Options, derivatives, and
a slew of other tools are available, which we will cover in future blog
entries. However, as a beginning, you must comprehend the following.
The stock market is
essentially a marketplace where firms can sell a portion of their enterprises
to raise funds, or where people who already own a portion of these
organisations can resell it to others who are prepared to acquire it.
Apple, for example, is
valued at $2 trillion dollars because it is so large that no single person can
afford it.
It's also a technique to
open up the risks and rewards to the general public. I hope this blog post gave
you a fundamental understanding of the stock market, how it works, and how
people profit from it.
If you're interested in
getting started, find a brokerage firm in our country that's close to you. Because
you must fund your brokerage account before you can purchase stocks.
Anyway, if you liked this
blog post and, more importantly, if you found it useful, please share it and
support your website.
Thank you for taking the
time to read this, and I hope to see you in the future one.
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