Stocks

A great number of people who want to invest their money often are puzzled by various ways of investment. When investing your money, there are a lot of options from which you can choose. Today we will discuss about investing in stock markets. The first question that may come in your mind is what are stocks? Stocks are a small part of a company or a corporation. These stocks are released into the market when the companies want to increase the net investment in their company through public investment. For an example, say you want to open a business and need a capital of $50000. Now assuming that you can’t afford the whole money by yourself, you divide your company’s ownership into 5000 stocks and thus allowing the public to buy your stock. If you sell all of your stocks at $10 per stock, you can easily get the $50000 you needed.

Now anyone who owns a stock of your company is an owner of your company, no matter how much small the ownership percentage may be. Now another question may come in mind is that why would people want to invest I your company? Assuming that you make a profit of $20000 in a year, that money is divided into the total number of stocks and thus each share earns $4 in the year. This earning is known as EPS (earning per share). Now you may distribute part of your earnings through cash dividends to the shareholders. That means each shareholder gets a percentage of the year’s total profit. Now to the question why the price of the shares fluctuate all the time? The value of a certain stock is governed my mainly two principles.

One is fundamental analysis of a company and another one is by supply and demand. The first one is based on valuation method of P/E ratio. The price to earnings (P/E) ratio is based on past P/E ratios and statistics to determine the value of the share in long terms. The second one is the most significant factor for sudden market change. It’s governed by the factor that the more people want to buy the share of a certain company the price goes up. And the less people want to buy it, the price falls. It’s mainly dependent on people’s feelings about the future of the company. If everyone of the market thinks that a certain company will gain significant amount of profit in near future, more and more people will want to buy the shares. This results the price of the shares to go up. The supply-demand relation can easily be manipulated by large shareholders. If all of a sudden, they dump their shares in the market, due to a great deal of supply of the shares the price falls. That’s why when investing in stocks; it’s wise to mix your shares between different companies. Another key technique is rather than investing all of your money at a time; it’s wise to invest your money over a large period. When investing your hard earned money, don’t let your feelings take over the facts. One wrong decision can let you to a financial disaster while well thought and planned investments can make your dreams come true.