When you
invest in a company's stock or buy its shares,
you own part of a company.
In general,
if the company makes money over a long period of
time, your stock may increase in value.
Though, stocks are risky, and you may
potentially loose all your money.
CHARACTERISTICS
OF STOCKS
Good potential for growth in the
long-term.
Riskier investment compared to other
types of investments.
Returns are not guaranteed.
Voting Rights
Generally, a stock holder has proportionate voting right in the election of the
company’s board of directors and in special circumstances such as a merger or
acquisition. As a shareholder, you are entitled to receive quarterly reports and
an annual report informing you of the financial health of the company. As a
shareholder, you’ll be invited to attend the annual shareholders’ meeting every
year. Most companies use a one-vote-one-share system. Every vote counts. If you
cannot go to the annual shareholder’s meeting, you will be sent an absentee
ballot.
How are stocks valued
Prices of stocks are determined by the demand and supply for the stock.
Investors determine the price by choosing to buy or sell the stock at a certain
price. Prices of widely traded stocks change several times during a trading day.
Prices of thinly traded stocks may change once a week or so. Stock analyst
recommendations also influence what investors are willing to pay for the stock.
Analysts and investors base their beliefs about stock prices on many factors
such as historical earnings, perceptions about quality of management, perceived
strength of sector performance, current and historical prices of the stock,
perceptions about mergers or acquisitions.
Stock Selection
Considering the fact that stocks as an asset class are riskier (ie. you may
loose money) investments than cash or bonds, it is critical that you study every
company in which you buy stock. Consider what analysts predict in earnings for
the company’s future. One should not be completely deterred by the risk involved
because history has time and again demonstrated that stocks outperform every
other type of investment over long periods of time as evidenced by the following
table.
Comparison of Annual Rates of Return on Selected Investments (%)
If you research well, make prudent
selections, view your investment as long term, adopt a buy and hold strategy,
and patiently ride out market volatility, chances are good that your stock
portfolio may reward you with returns that substantially exceed returns on other
investment vehicles.
For teaching and learning about investing:
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