What is Stock Investing

Stock mainly refers to the share in the ownership or share in the profits made by any business establishment. Hence, stock investing means that individuals become shareholders in the profits or ownership of the company by purchasing the securities or shares that the company floats in the capital market. When the individuals purchase these shares they have a claim in the profits and overall working of the company equivalent to the value of shares purchased by them.

When, individuals purchase stocks of a company, in return they get a small part of regular payments that are known as dividends. These dividends are paid on the basis of the profits made by the company and it is the share that the investor gets out of the profits in return to his tock holding in the company.

For the company, stocks are a way for rising more capital for further investment. The main advantage of stocks to the company is that they do not have any legal obligation or are not bound by a law to return the borrowed money to the investors.

How to Invest in Stocks

There are several ways in which an investor can purchase stocks of a company. The important means are as follows:

1) The investor can directly purchase the stocks from the stock market. Apart from this, he can purchase shares through the Internet. Online trading has become the mainstay of the stock market and a majority of the investors are involved in dealing in stocks online.

2) Investors can also buy or sell stocks through a share broker. A share broker can be termed as an intermediary between the company and the investors. In return for his help in stock transactions, he gets a fixed commission.

3) There are a large number of professional financial institutions or investment advisors that deal in stocks on the behalf of the investors. These institutions advise the investors in purchasing the right stocks at the right time of the right company. They also collect the dividend on the behalf of the investor.

Features of Stock Investments

Before an investor is involved in stock investing, it is imperative that he knows about the underlying features and nature of stock investments. Some of the key features are as follows:

1) When the company is making large profits and has great growth

prospects, then the price of its stocks are bound to increase. Likewise, when a company starts under performing and experiences losses then the value of its stocks would decrease and it would lose all its shareholders.

2) There are two types of stocks, namely common stocks and preferred stocks.

Common Stocks: Common stocks refer to the large number of stocks or the majority of the stocks that are held by the public or the large number of small shareholders. The public gets regular dividends along with voting rights with these common stocks. Common stocks are greatly liquid in nature.

Preferred Stocks: Preferred stocks, as the name suggests, has a greater preference and weightage than the common stocks. Not all companies issue preferred stocks. Those, which do, pay more regular and consistent dividends as compared to the common stocks. Also, preferred stocks are given more preference over common stocks by those companies that issue them. However, preferred stock holders do not get the right of voting like the common stock holders.

Tips on Investing Stock

Investing in stocks is a tricky affair and involves an element of gambling to a certain extent. This is because when buying stock of a company, the investor is taking a risk with his current money for getting future returns. However, stock dealings have a great science and study behind it and hence require proper business knowledge on the part of the investor. There are certain basic tips that a novice investor must follow in the process of investing stocks. The tips are as follows:

1) Usually, small investors invest in stocks by taking a part from their savings. However, it is necessary for them to remember that not all savings must be invested in stocks. They must withhold some amount of savings with them as a security measure.

2) It is a better idea to invest in long-term stocks, as they largely remain unaffected by frequent market fluctuations. There is a risk of losing money in short-term stocks if the stock markets dip. However, in the long run, the markets would stabilize and the investor would not lose his money.

3) It is necessary that the investors invest in stocks of different company and not focus on only one company. This diversification of stock holdings is important for the investor to diversify his risks and returns. Hence, even if a company experiences losses, the investor would not be greatly affected if he has only a small number of its stocks. Likewise, small stocks of different companies belonging to different industries would help the investor in enjoying the profits of different industries at the same time.

4) It is very important for the investor to learn to read the market fluctuations and developments in order to be able to invest in the right stocks of the right companies. Investors must be able to predict the growth path of small companies so that they invest in them to enjoy the returns in the process.

These are just a few of the basic features of investing stocks that every investor must know. These are the fundamental principles without which an investor cannot understand the complexities of the stock market and stock investments.