In today’s era, people are becoming more engaged with businesses and investments where their money works for them. One of the common investment vehicles used are stocks. Following are the fundamental concepts of stocks, its characteristics, types, and several factors to consider when buying or selling shares of stocks.
Stocks are considered to be a fair share in a company – a claim on company’s assets and earnings. These are sometimes referred to as equity or equities and are issued by companies to raise capital in order to grow the business or undertake new projects.
These can either be ordinary (OS) or preferred shares (PS). Differences between OS and PS include:
- OS are entitled to indefinite dividends while PS have fixed dividend rates.
- OS have voting rights during shareholder’s meetings while PS typically do not have voting rights.
- PS have prior claim on company’s assets upon liquidation.
Having determined the type of shares you might want to obtain, there are several factors that should be considered when purchasing shares of a company. These factors include, but are not limited to the Company’s:
- Business sector
- Level of Profitability and Earnings History
- Liquidity, Return on Assets, and Return on Equity
- Company’s Management
- Risks associated with the Company
There are still other factors that should be considered when investing in stocks. These will be discussed in detail in the succeeding articles.
Before investing, examine your risk appetite and tolerance. Also, determine how long you are going to hold your investments. Are you in it for the long haul or would you like to speculate?
We recommend you have sufficient savings that will cover your expenditures and have allowances for sudden expenses before investing in the stock market.
Throughout your investing journey, we hope that you continue reading good books about investing to further enhance your skills. One of the good books we have read by far is The Intelligent Investor by Benjamin Graham. This book was read by Warren Buffett when he was 19 years old and, according to his preface on the book, has profoundly taught him fundamental investing concepts.
Hope this article finds you well. Happy investing!
Here is a quick link to PSE-listed companies that you might want to check before investing.
– Mag & Anj, Your Partners in Decision-Making