What is a stock? What is an excess return? How to manage an equity investment? What is an investment in the stock market? How to choose stocks for investment? Buying a stock – an investment or a gamble? Here are tools for making an informed investment in stocks
Investing in stocks can be especially rewarding, but it is also risky. Holding shares makes you a partner in the company, including partners for receiving dividends. Every company (both a private company that is not traded on the stock exchange, and a traded company) has a certain amount of shares, with each share expressing a certain voting right and a certain percentage of the company’s capital, and simply put – let’s have a company with 2,000 shares, and we have 20 shares, so we have Basically 1% in the company’s share capital (20 parts 2,000) and that means we have 1% in the company’s capital for the purpose of receiving dividends, and we have a voting power of 1%.
What is a stock?
When companies issue on the stock exchange, they actually raise capital for the issuance of new shares – let’s say the company in the stock market goes out to the stock exchange, and it issues 1,000 new shares, then a moment after the public offering the number rises to 3,000 shares (2,000 before the issue plus 1,000 new shares). At the same time, it receives the consideration for the issuance of new shares, and the accounting capital increases (in parallel with the increase in cash).
How to invest in bonds?
The price in the issue is determined according to the valuation of the company and based on the financial data and mainly, how much it earns and how much it will earn, when as in any market, in practice the price is determined by demand and supply.
When we talk about investing in stocks, we of course mean mainly traded stocks, those that have passed the stage we have presented here – issuing shares to the public. In the next stage, after the shares are issued to the public, the company’s shares are traded daily, but this time no new shares are issued, this time, it is a trade made by the players in the capital market – the institutional entities (the same entities that manage our money ), Private investment funds, various companies, and private individuals. The price in this trade as well, by demand and supply, and given the financial data and developments in the company. That is, if a company publishes financial results that are better than what is valued in the market, the stock is expected to rise; If there is a collapse in European markets, then stock prices in the country are expected to fall (chain reaction); If a company reports a very large transaction, its price is expected to rise. But it is important to emphasize at this stage – the stock market is not an exact science. There are no clear formulas, there is no such thing as sure – not sure at all that good results will cause the stock price to rise; It is not at all certain that a decline in Europe will affect the domestic market, there are many and varied factors that affect stock prices, including macro data, investor liquidity, stock performance, bond market, global situation, political situation, regulation, financial data, company management, barriers to entry For the industry, the state of competitors, customers, suppliers, etc., although in the long run it is expected that there will be a correlation between business performance and market performance, in the short run, it is not really binding.
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Shares – provide an excess return over time
So we understand that the price is set in the market, and we know that stocks are a risky device but also with a chance to yield an excess return on solid devices – it works like this: stocks are said to be partners in business, and this business can succeed and fail, when factors affect business value The firm’s market is the total number of shares double the share price) they are also those related to the firm’s situation but they are diverse and focus not only on the micro-level but also on the industry level and macroeconomics in general. All of these parameters (along with other factors) affect the stock price on a daily basis so that the fluctuations in stocks significantly exceed the fluctuations in the disgusting devices. These fluctuations express risk, and because investors in stocks actually take risk, they are rewarded for that risk – after all, everything has a price, and if an investor takes a risk (risk of losing) he does so because he knows there is a chance of profit. All this theory (presented here on one foot) is expressed in the data on the ground – stocks are more volatile, riskier, but over time provide an excess return on the solid instruments (government bonds). In practice, if you look at the last 30 years, you find that the stock markets on average (in a global perspective) provided a return of 6% -8%, while the return on solid channels was 3% -4%. In recent years, yields have fallen significantly, in line with declining interest rates (which in some parts of the world have turned into negative interest rates), and yet stockmarkets provide higher returns than solid channels.