Stock Investing

Stocks are an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets.

Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but usually guarantees a dividend payment.

In the past, shareholders received a paper stock certificate – called a security – verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.

To Invest is to allocate money in the expectation of some benefit in the future.

In finance, the benefit from an investment is called a return. The return may consist of a gain (or loss) realised from the sale of an investment, unrealised capital appreciation (or depreciation), or investment income such as dividends, interest, rental income etc., or a combination of capital gain and income. The return may also include currency gains or losses due to changes in foreign currency exchange rates.

Investors generally expect higher returns from riskier investments. When a low risk investment is made, the return is also generally low.

Investors, particularly novices, are often advised to adopt a particular investment strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk. Investing in stocks can be tricky business. In fact, it’s best to treat all your investment pursuits as a business. Heck, that’s what Benjamin Graham (Warren Buffett’s stock market mentor) recommended.

Before you buy your first stock, you should master the basics of stock investing. This won’t make you a great investor overnight, but only when you understand the fundamentals of investing can you learn how to invest in stocks with confidence.