For beginner investors the stock market may be a confusing place to find themselves in. The investment terminologies used by the stock brokers and investment bankers can also end up confusing you even further. However in all its breadth and width, you only need to know five things for you to be a smart trader at the stock market.
The first thing you need to know is what a stock market is. Just like any other commodity market, a stock market provides a platform for individual investors to buy and sell stocks of a company. It is a place where you buy and sell part ownership of the big companies listed there.
That begs the question of what the word stock means in this context. Contrary to the common meaning of inventory, in this case stock means a bundle of shares in a company. A share can further be described as a peace of ownership in the whole company with a given monetary value.
The concept is simple: if the whole company is worth Kshs. 10,000 shillings, the total value is divided into small equal portions of equal value. In our case we can have 1000 equal portions each worth Kshs. 10. This will then give us the total value of the firm at Kshs. 10,000. Each of the 1000 portions is a share of the company and when bought or sold in a bundle they are referred to as the company stock.
The third thing to know is when to buy and when to sell shares. Just like in a typical commodities market, all you need to get high returns in the stock market is to buy the stock of a company when its share price is low and sell when it is high. There is no rocket science involved; it is as simple as that!
Your purchase of a company stock can be influenced by several factors apart from the current share price. These factors form the fourth aspect about the stock market that you need to know before venturing there. The factors vary from management of the company, financial performance, industry, personal preference of long-term or short-term investment period among several others.
Finally you need to know your cost of capital when venturing into the stock market in order to be able to estimate your required rate of return in the equity investment. The costs involved here include brokerage fees, information search costs among others.
Having mastered the above, it then becomes easier for you to participate confidently in the stock market from an informed point of view. However, the above explained five things are just but the basics; you need to dig deeper for more information about the stock markets, and turn that information into financial power through high returns investment decisions.