In the general understanding of people around the globe, the stock market relates to purchasing and selling of shares of a particular company. Usually these are selected on the basis of mere instinct or small amounts of research and carry with it an inherent risk.
So if you are one of those blessed earthlings who possess bags filled with money and are serious about investing it to make the most out of it, you might be thinking of putting it into the stock business. And, if you are lucky, you get enough returns to buy expensive stuff and make headlines. But in case the stock market crashes the gamble could be devastating. The risk can be high and obviously a prime factor when debating to enter in to the stock market. However if you wish to flip the coin of your fortune by becoming a shareholder, a little homework might help!
Let’s get serious to understand the stock market better. Stock business includes the buying and selling of shares of stock in the ownership and possession of a company. In layman’s language, when you buy the stock of a company you actually own a percentage of all the profits made by the company, and its assets, including the equipment, building, sub divisions, trademarks etc. This may present a clearer picture of what it means to be a shareholder.
However, the next question that knocks your brain might be this one: Why exactly will a company want me, or anyone else who knows nothing about business, to be a shareholder? Bingo! You nailed it! This is the exact purpose of the stock business. The reason is simple. The company needs finance or the start-up cost which can be either covered by borrowing money from a bank or financial institution, termed as debt financing, or through the stock market by selling stock – described as equity financing.
The downside of taking a loan is “paying it back” with the extra interest amount, which can be tricky and can carry a big risk in case the company goes broke. On the other side, opting for stock business as a solution is undeniably less risky as you don’t have to pay any of the interest or the money back. In a worst scenario of company failure, they don’t owe any large amounts of money, rather smaller amounts to be paid to the shareholders.
From the point of an investor -though the risk can be high, with the passage of time, experience, and research, one develops an immense understanding of how the stock market works and what stock companies are wise to invest in. This will help mitigate your actual risk.
However, the trick is doing your research each time. You must do your due diligence through every facet of the company and be aware of the current market state. Randomly following the prior year ‘trends’ and believing that a company will always bring large returns, is foolishness. And the results can be dreadful, as was the case for the investors during in the dot-com bubble break in year 1999. Because of enormous returns, dot-com bubble years were considered to be an era where stock business investment was the ‘sure-fire’ way to get rich quick. The bursting of the bubble and clashing of the stock market left its investor no-where. A similar recent example of a stock market collapse that left investors shaken was the Recession of 2008.
As in many things, success in the stock market can also correlate to good timing as well as doing your homework. The mantra is “to think before you act and research before you invest”.