The stock is one of the financial products that attract the attention of many investors in the world because of its profitability. To succeed in this field, investors need to understand its basic information, such as what stocks they are, what types of shares are available, and how to buy/sell a security. The following article will also give you some useful information related to stock investing (What is stock? How to make money in stocks).
1. What is a stock or stock?
A security is a security that represents the ownership and legitimate interest of the shareholder in the assets or capital of the company.
For companies, the issuance of shares is a form of raising capital to serve the growth plan or activities of the company such as launching new products, expanding markets, building infrastructure, etc. For investors, investing in stocks is a way to grow their money and overcome inflation over time.
When a company wants to grow its business, it raises capital by issuing shares. Depending on the number of shares you buy, if the company grows effectively in the future and the shares go up, you will get a profit from the company. The more shares you own, the more profit you receive.
Example: Apple Corporation issues 1,000 shares. If you own 1 share of Apple Corporation, that means you get a 0.1% stake. If you own 500 shares, you own 50% of this company.
In addition, when you hold certain shares of companies, you will also be paid dividends. Apple, for example, paid a dividend of more than $3 per share last year. This is also why so many people are interested in investing in stocks to grow their health.
2. How to make money in stocks
When you buy a share of a company’s shares, you can profit from your property in two ways:
✓ Appreciation: When the price per share of your shares rises to a higher level than what you originally paid for it, you make money. This profit, however, is only on paper until you sell the stock, at which time you realize a capital gain. Of course, the stock price per share can fall below what you originally paid. Specifically, your profit will be calculated with the formula:
Profit/loss = (Sale price – Purchase price) * Number of shares – Transaction fee
✓ Dividends: Dividends are corporate profits transferred to investors when the company makes a profit. Not all stocks, however, pay dividends. Dividends are distributed according to the number of shares they own. For example, if Apple announced a dividend of $0.80 per share, the shareholder with 50 shares would receive a dividend of $40.
If you add up dividends and appreciation, you get to the total return.
3. What are the different types of stock?
There are two main types of shares, common shares and preferred shares.
- Ordinary shares: give owners the right to vote at shareholders’ meetings and to receive dividends.
- Preferred shares: Owners do not have voting rights on business decisions, but they give owners priority over common shareholders and instead reduce risk. In particular, if the company goes bankrupt, they will be given priority to pay first.
Ordinary and preferred shares may be classified into one or more of the following categories:
- Growth Stock: It is a stock of companies with significant future growth potential, offering attractive returns but with a relatively high level of risk. These issuers have a growth rate above the market average, typically 15%-20% or more. A start-up technology is likely to be a growth headline.
- Income stocks: They offer higher dividends. Investors buy them because of the profits they generate. Income stocks are attractive to investors looking to gradually increase earnings over the years as a way to offset inflation.
- Value stocks: these are shares of companies that are undervalued and trade below their market value. People buy value stocks hoping that the market has overreacted and that the price of the stock will rebound.
- Blue-chip stocks: These are the shares of a large, reputable and well-funded company with a solid history of growth. In the United States, a blue-chip stock typically belongs to a group of companies with a market capitalization of billions of dollars. Some examples of blue-chip stocks are IBM, Coca-Cola and Boeing.
- Penny stock: is an exceptionally cheap new company stock, usually less than 1 USD/share. Penny stock is a highly speculative asset.
Another way to classify stocks is based on the size of the company, as shown in the market cap, broken down into large-cap, mid-cap, small-cap, and micro-cap stocks.
Here are some of the most basic knowledge about actions. We hope that, through this lesson, you have understood the concept of what stocks are, the types of stocks available in the market today, and how to make money on stock investments.
