Copyright © 2020, S&P Dow Jones Indices LLC.
Rossana Serlenga
31 aug. 2021
#startinvesting #financeintroduction #stockmarket
I’m sure many of you have heard of the word stock before, but you don’t quite know what it actually means. Personally, I only found out about it a couple months ago and I am still not very good at understanding every aspect regarding stocks, but I hope that by the end of this article you will have a basic idea of what stocks are.
Firstly, shares are defined as partial ownership of a company. Each company will divide it’s ownership into different shares/parts. This makes a share a part of a company which you can buy and so become the owner of that small part of the company. Being a partial owner can be a very handy way to earn money. If the average consensus between other investors is that the company will do good then people will buy it. This is then followed up by an increase in share price. If you buy at a lower price than you sell then it’s possible to earn money. On the other hand, if there is a low confidence in the company people will sell the partial ownership. This will lead to an unproportionable ratio of selling compared to buying which drives the price down (laws of demand).
There are many strategies when deciding the way you want to invest. You can buy shares from companies that are safer than others. For example, you can invest in something like Coca-Cola. Which might go up by a couple percentages a year meaning you will earn money, but not a lot and not necessarily in an exciting way. The advantage with a stock like this is that it’s safe but you will never earn tons. Then there’s companies like AMC (a very popular stock at the moment) which might go up or down by 15% in just one day, this is a great risk to take, but if it goes well you will earn a lot more compared to the safer options. When considering to buy a stock it’s important not to only consider the individual company you will invest in but also the overall market confidence.
In times of crisis, people get scared and so they take out there money straight away. Examples of big economic crisis include the Great Depression of 1929 or the recent COVID-19 crash. During recessions (reduction in economic output) money earned from jobs becomes less secure which leads to people taking their money out of their investments to ensure they have enough money for necessities.
This example is of the Dow Jones, which is not a company, but rather shows an average of how the best 30 companies of the USA are doing, so you can compare your stock with this to get an indication. As you can see, in march 2020, the average of all companies crashed, but had a rapid rebound. Currently there is a consolidation around a price of 35 000 due to fears of inflation.
There is an endless amount of more information regarding the world of stocks and the Stock
Market, but this was just an introduction to hopefully make you more or less understand stocks. There are many online courses and books which could help you learn more about this and if you are interested there will be more articles coming out from the Finance club. Another way to feed your interest could be to download apps and choose some random companies and check on them daily to see what is happening to them. Maybe set up a demo account on Plus 500 where you can practice earning money.