What is a Stock?
What is a Stock?
A stock is a physical piece of paper that says you own a certain number of shares of a company, and that you are in partnership with that company. To make more money on your interest, you need to purchase stock or shares in companies that are publicly traded on the stock exchange or stock market.
A business sells stocks because it needs money either to operate its business or increase the size of the business. By offering shares to be purchased, companies bring in money from stockholders in exchange for the right to a part of the profits. The company may pay quarterly dividends to shareholders out of its profits (or reserves). Otherwise, you can sell your shares either back to the company or to another investor by trading your stocks. Overall, your rate of return investing in the stock market is two to four times greater than your typical saving's tools. Remember, however, that every trade you make will require a commission charge between 2 and 10%. This is regardless if you are buying stock or selling stock.
What Stock should I Buy?
The size of the company has a lot to do with what you expect to get out of a stock. Typically, big companies don't have big stock moves. You don't buy a company like Coke expecting to triple your return in a year. Big companies have small moves, small companies have big moves. Look for a fast growing company that grows very fast! This type of company may increase by 20 to 30 percent within one year. That is where a real opportunity exists.
Go with What You Know!
Look for companies of things you know or like. Remember that you want to diversify. This means selecting companies in different sectors and industries. You should always understand the nature of the companies you own and the specific reasons why you want to own them. The things you use everyday would be a good place to begin investing. The fast growers are small, aggressive new enterprises that grow at 20 to 25 percent a year. Taco Bell and the Gap are good examples. Researching stocks is one of the most important things you can do, if you want to make money. The more you know, the better it will be for you in the long run.
- One Up on Wall Street, Peter Lynch, 1989.