What is Stock?
Stock is an ownership share in a company. Not all stocks are equal though. Preferred shares often carry enhanced ownership interest, higher dividend yields and superior placing in the capital structure of the company. Common shares carry an intrinsic value based on the current net worth of the company, minus superior debt, divided by the number of shares. However, shares rarely trade at this intrinsic value, but usually at some premium based on discounted future cash flows. In other words, how much anyone is willing to pay for a stock at any given time is not just a function of its current value, but what it is expected to be worth at some time in the future. All shares of the same company and class are fungible, and are priced at the last sale price of any one of the shares. Purchasing stocks and shares is one of the most reliable ways to save money and generate income over the long term, but stock is only worth what someone is willing to pay for it at any given moment, and the value of shares is known to be volatile and can change rapidly. Learn about the mistakes people do while investing https://timebusinessnews.com/as-a-financial-advisor-what-is-the-most-common-mistake-you-see-people-making-with-their-personal-finances/ Picking Stocks Clearly, knowing which stocks to buy and when is crucial to making money in the stock market. So is knowing when to sell. Professional traders and investors never buy a stock without rigorous analysis first, and an identified target, or sell price. When screening for possible stocks and shares to purchase, most professionals use a top-down approach in which they start with a very broad view of a sector of the economy or type of asset they'd like to purchase. Perhaps they're looking for a tech stock, or a high dividend yield. From this group of large stocks, they then whittle the universe of picks down to just a handful. Then, perhaps through technical analysis, they assess the recent trading action of the stock, select buy and sell points and, at the opportune moment, initiate the trade. Buying Stocks and Shares For the layman, the stock selection process will probably not be as rigorous, but at the very least there should be an articulated reason for buying the stock and a strategy for managing the position. In the old days when there were only full service brokers, a stock buyer would have to call their broker and leave instructions. Today, with the proliferation of online discount brokerage houses, many traders conduct their own research and give their own trade orders, and pay much less in brokerage fees and execution costs. Assuming they have a funded trading account, these so-called retail investors can place market and limit orders to buy and sell shares of stock at will, and can trade options to hedge stock positions. Read Also: Reasons to Invest in a Company
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