Buying and selling shares is becoming more and more common among middle class investors. In many cities around the world, property is becoming far too expensive and keeping money in a bank earning interest delivers a small Return on Investment but nothing to write home about. With that in mind, here are some little known facts about the share market which might be worth considering.
It’s not just a piece of paper.
Buying and selling in the share market actually means that you own a fraction of a company! Companies on the stock exchange are publicly owned companies which can be bought at the quoted price once purchased.
It’s better to have a long term strategy, than risk it all short term
Over the years the cost of trading in stocks and shares has gone down dramatically. Brokers’ commissions have gone down dramatically however buying stocks are shares for a short term result could leave you with less money. This is because in some countries such as Australia, share trading with a short term gain can be liable for capital gains tax. In some countries that could mean as much as 50% going to the taxman. To get the best out of stocks and share trading it is worth leaving your investment in the business until such time you’re not liable for tax.
The higher price a stock is doesn’t mean how expensive a company is.
A stocks value is subject to the initial interest in the company which is set in IPO (Initial Public Offering). For example a company worth $100 could be considered cheap if the company’s future earnings are strong and a company could be expensive at $1 if their ability to make money isn’t great (and of course vice versa). In the case of Facebook for example they priced their company at a price which investors weren’t interested in buying. This made Facebook as a stock less valuable and as such dropped in value. It has recovered now but initially there was very little interest which made an abundance of supply. On a side note, It is interesting to note that fellow Social Media rival Twitter is looking to go IPO very soon.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.