Stocks is just one of the many forms of investment. Aside from buying houses from and wait for the right time to flip it, stocks is a great way of diversifying your portfolio.
A Better Look at Stocks
Stocks serve as representation of a publicly-traded company. When a stock is bought, you automatically become a partial owner of that company. For instance, if the company has over 100,000 shares and you bought a thousand of it, then it means you own one percent of that company.
Owning stocks let you earn more from the growth of the company and at the same time, gives you voting rights as a shareholder. Companies are selling stocks for a number of purposes. It could be any of the following:
- To gain more funds that will help grow their business
- To attract investors in launching new products or;
- Paying debts
The very first time that a company issued stocks to public is referred to as IPO or Initial Public Offering. After IPO, stockholders may then resell their shares on stock market – wherein the prices are backed by supply and demand.
The more interactions in buying and selling of stocks, the lower the stock price will get and the more would buy it and vice versa. In general, people are buying or selling stocks based on their assumptions or expectations of the company’s profits or earnings. If traders and investors think that the earnings of the company will keep on rising or are high, then they are bidding up on the stock’s price.
How Stockholders are Making Money?
For anyone who buys a stock of a company, they’re called as stockholders or shareholders. There are many ways for them to make money from the stocks they have bought. We will discuss some of these methods briefly in the next lines.
Buy & Sell
For one, they can sell their shares when the stock’s price is high than what they initially purchased. If the company does not perform well and the value of shares decreased, then its shareholders may potentially lose part or worst, their entire investment once they sell it.
Every quarter, payments are distributed on per-share basis out of the profits generated by the company. It can be said as a way of rewarding and incentivizing shareholders for their investments. It is a lot more important among profitable companies but might not growing fast.
Derived from its value on the underlying assets similar to bonds and stocks. For some, they see it as a riskier way of profiting from stocks.