Over the two centuries from 1802 to 2002 monies invested in stocks averaged over six percent per year rate of return. Stocks grow in value giving a capital gain and many companies provide dividends to shareholders. With all dividends reinvested, stock investing would have returned over $8 million on an investment if held for two centuries. This is an extreme example but makes the point that “buy and hold” investing can provide excellent returns over the long run. This is the type of reasoning that goes into picking stocks, for “buy and hold” investing is called fundamental analysis whereas technical analysis is used in day trading. Welcome to stock investing.
Welcome to stock investing basics. In the USA each stock exchange will allow you to buy stock through a stock broker or buy stocks online. American stock exchanges are considered to be reasonably transparent and fairly priced based upon current knowledge.
To buy stock for the long term requires that you do a fundamental analysis of the company whose stock you wish to purchase, or later, sell. Welcome to stock investing and fundamental analysis. Fundamental analysis means that you read financial statements of a company, look at how competent its management seems, reflect on the competitive advantages the company enjoys, what market it operates in and who its competitors are. Once you have looked at a company’s past performance and judged its prospects you buy the stock.
The rationale of long term, “buy and hold” investing is that the long term is predictable, if you believe that past performance is an indicator of future performance. However, things change, including the fundamentals of individual stocks and market sectors. Welcome to stock investing and managing risk.
Market risk is determined by the law of supply and demand. If the company is doing well and investors believe that prospects are good, the price goes up and, if not, the price goes down. Liquidity risk has to do with how large a company is, how many shares there are, and the ability to buy and sell the shares easily.
If you own a stock in a small company and there are no buyers, at any price, when you want to sell, then welcome to stock investing liquidity problems.
Today we can buy stock online. Commissions are lower and the market is more liquid. Going on your own without the advice of a stock broker can be a problem if you are new to stock investing.
There are stock exchanges throughout the world. Not all stocks are listed on all exchanges. However, many foreign stocks are listed on the New York Stock Exchange as American Depository Receipts (ADR’s). Thus it is possible to trade stocks directly on foreign stock exchanges or by proxy through ADR’s.
Investment in the stock of a well-run company, with excellent products, and good management can outperform other, more conservative investments over time. What someone new to stock market investing needs to do is learn stock market terminology, learn about the workings of the stock market, and learn about individual stocks. Welcome to stock investing homework!
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