Investing on the stock exchange has been popular over the years, whether the market is high or low. With proper handling of stocks in his account, an investor can expect to produce a good return of investment. However, patience and learning is needed before someone can jump right in and make money investing in stocks.
There are different stages that you have to go through to invest money into the stock exchange. There are two ways that an investor can play the market, either online or offline, and the it all depends on whether they want to have a stock broker, or if the investor would like to create his own strategies. The following are several ways that someone could purchase stock if they wanted to do so online.
1. In order for an investor to purchase or sell any stocks, they have to have a connection to the internet and set up their own account. This does not call for any software that you have to purchase, just a connection to the internet.
2. The Internet offers a selection of websites that conduct online stock exchange trading. It is best to check out forums for sites that look interesting and get reviews that way. Most online stockbrokers are very similar while their pricing differs somewhat for the services offered. Beginners are encouraged to pick one of the top brokers just to make sure their money is safe.
3. When the investor looks over the site, he will be able to start filling out a form for opening his new account. The questions on this form will include things like, their name, phone number, and address. You have to give them your correct social security number so that the government can see the money you make and tax you on it.
STOCK BASICS
Company versus Stock
For successful stock-selection, it is important to differentiate between a company and its stock. Some pointers on how to look at a stock in isolation
It's Different
The qualites of a company. Or the state of its affairs, are not always reflected in its share price. A company might be fundamentally robust, but a high valuation of its stock can make it unattractive for investors. Or, it could be an M&A target, which could make its shares attractive irrespective of the fundamentals. Here are some areas where investors often confuse the stock with the company.
Growth Company vs Growth Stock
An incorrect way and, perhaps, also the most common occurrence is one where a growth company is defined as one that shows high earnings growth. A company could experience high growth through measures such as excessive leveraging. The real definition of a growth company is one that grows at a rate faster than the rate of return required to offset its cost of capital. The stock of a growth company is not necessarily a growth stock. Instead, a growth stock is one that is undervalued and experiences returns higher than other stocks with similar risk characteristics.
Cyclical Company vs Cyclical Stock
As the name suggests, a cyclical company's earnings will be affected by changes in economic activity-examples include automobile and steel manufacturers. However, this does not mean that stocks of such companies would necessarily be cyclical. When you think about cyclical stocks, consider only the rate of return on the stock and compare it with the market's return. In a rising market, a cyclical stock will be one that experiences a rate of return higher than the market. We also call such stocks high-beta stocks.
Defensive Company vs Defensive Stock
Defensive companies are those whose earnings are not heavily influenced by business cycles. Some examples are fast-moving consumer goods (FMCG) companies and utility firms. Here again, consider only the rate of return on the stock and the market's return. If the stock moves less than the market, it is called defensive.
