Courtesy of PennyStockSnipper.com
Did you know that if you own stock, you actually own a part of the company? So if you own Apple stock, no matter how many shares, you are actually part owner of a multi- million dollar company. For example, let’s take Apple. If you bought one hundred shares of Apple, you would become a partial owner of the company. Unfortunately, you would only own a very small and I mean very small chunk of the company, but it is still cool to say you “own” a chunk of Apple. You might think you’re a big shot because you own 100 shares of Apple, until you see the top shareholder for Apple and see that he has more than 300 million shares.
So how do people make money if they own shares in a company?
There are two possible ways. First, when a stock you own appreciates its value. This happens when the people who are buying the stock decide that it is worth more than the current value. You also can have unrealized gains, which means that you hung onto a particular stock for a while and it has gone up in value. So for example, if you buy 500 shares of a companies stock at $10 each and a year later its at $20 each, you have earned a total of $1000. You have doubled your money in one year. But, of course you have to realize that unless you sell that stock, you don’t really have the money in your hands.
The second way is for a company to issue dividends, which is a payout to the current shareholders. So for example, if the company was profitable during the last quarter and they offer dividends, you will get money back, depending on how many shares you have. Obviously, the more shares you own, the more you will get. But on the same token, if it had a bad quarter, you won’t get anything. Or if it had a loss, you might lose money because the stock loses value, depending on how bad they did.
Nothing is guaranteed when you invest in the stock market. It is impossible to accurately predict what will happen, so you can never know if you’re going to lose or make money. Since the stock market is constantly fluctuating, you can make a ton of money in one minute, but loose it twice as fast in a second. A rule of thumb used by traders is “ Buy low and sell high.” This is the key to making money, and it will work everytime if you do it correctly. You buy stock in company when it is very low in value and when it rises again, you sell all of them for a profit.
When you decide to invest in the stock market, an important concept to keep in mind is diversification. Don’t put all your eggs in one basket. So, if the technology sector takes a beating one day, you could make up for it if you also had money in the energy sector and it had a good day, so it would balance out. If you ever decide to take the risk and invest all your money on one company, there are two possible outcomes: you can lose all of it in a blink of an eye, or if you’re lucky and you get in at the right time, you can make a fortune.
However, the best and safest way to make a profit on the stock market is to diversify and ensure that your money is in different locations. Now don’t go running to Wall Street with the money you want to invest in you hand; it’s not that easy. There are a lot of things that you need to find out and set up before you go out and invest your money in the stock market. But it’s never too soon to start learning!