If the idea of stock market investments scares you, remember you are not the only person who is. Several people with limited awareness and knowledge about investing in the stock market. Stories mislead them about people losing about 50% of their portfolio’s value in the stock market, or they have been promised huge returns after following tips but experience failures or losses.
Know how the Stock Market Works with Kavan Choksi
Business expert Kavan Choksi is an esteemed entrepreneur with valuable experience in finance, technology, and travel. According to him, the truth about stock market investments is that it has risks; however, if you approach the market in a disciplined manner, it is one of the best ways for you to build wealth.
The value of your home accounts for a majority of your net worth. This also holds true for the average individual; however, the affluent invest in stocks, and this is where most of their wealth lies.
You just need to understand the mechanics of stocks and know how they work in order to make wise investments.
What is a Stock?
A stock refers to a financial instrument that signifies ownership in a corporation or company. It represents a proportionate claim on assets and earnings. The assets refer to what the company owns, and the earnings indicate the profits generated. Stocks can also be shares or the equity of the company.
Stock ownership means the shareholder has an ownership in the company equal to the shares purchased. For example, if a person owns 100,000 shares of the company having 1 million shares, this means he/she has a 10% stake of ownership in it. A majority of companies have many outstanding shares that can run into millions or even billions.
The Types of Stocks
There are two types of stocks popular in the market- preferred and common. The word “equities” refers to common shares, as their trading and market value combined are much more than preferred shares.
The primary distinction between these two types of stocks is common shares have voting rights that allow the shareholder to have a voice in corporate meetings like the AGM (Annual General Meeting), where important corporate matters like the election of the board of directors or the appointment of auditors need to be voted. Owners of preferred shares do not have these voting rights.
Preferred shareholders prioritize common shareholders when it comes to the receipt of dividends and the assets in the face of liquidation.
Stock exchanges refer to secondary markets where present shareholders can enter into transactions with potential buyers. You should understand that corporations in stock markets do not sell or buy their shares frequently. Companies do issue shares or deal with stock buyouts; however, this is not done daily. It takes place outside the exchange’s framework.
According to Kavan Choksi, you should be aware of the stock market before you carry out transactions. Consult professionals in the field for getting the correct guidance so that you can earn profits on your transactions with success.