Penny Stocks introduction CHAPTER 1
Are you bored with the 9 to 5 job? Want something in your life to change instantly? Want your dreams come true. Your dream of relaxing in a big house and there is a flow of money in the form of dividend cheque. Imagine yourself an owner of a business and watch your company grow.
All of this and much more is now possible by owning penny stocks.
In today’s fast moving world , stocks which was always the ball game of the rich and wealthy people , with the trading technologies expanding itself , the market has opened its doors to each and all who wish to own stock.
If you wish to multiply your money and want build wealth then owning stock is the thing for you .But before you take the plunge in this deep sea of stock market ,its vital and important for you understand about the stocks and how they trade. Most people have heard about stocks from friends or often have overheard a conversation, like “oh Mr. Shah, did wonders on the stock market and now is starting a new firm “or “Mr. Patel lost …XYZ amount in the stock market. Though being a very popular topic of discussion in most of the places, there is a lot of misconception about it. Everything in life is not free so even this money building financial tool also has risk factors in it.
The only way is to educate our self and protect our self by investing the money at the right place.
WHAT ARE STOCKS AND SHARES?
To run a company or a business, you need funds. This capital can either be generated from within or one has to be borrowed from outside. Borrowing the money can always be a very expensive option , what companies do is give a unit of ownership interest in a corporation or a financial asset, which is called aÂ SHAREÂ and the person possessing the share is calledÂ SHARE HOLDER.
It does not mean that if a person is SHAREHOLDER he/she gets to make decisions in the day to day operations of the business. They get the equal share in the profits of the business in the form of dividends.
STOCK signifies the ownership on the company’s assets and earnings. So in totality SHARES and STOCKS in today’s financial market mean the same thing.
Normally a layman would buy certain shares and keep it just to earn dividends, where as few investors who want to deal in the stock trading would buy and sell them. The prices of the shares keep on rising and falling, so you should d be prepared to lose your investment anytime.
There are investors in the stock market who have lost their fortune in it and few have billions.
So what is most important before entering into the big well of stock market is to educate yourself properly and learn in which shares to invest which can give you big returns.
TYPES OF STOCKS
There are generally 2 types of Stocks.
COMMON STOCK: A common stock also known as Voting share or an Ordinary share gives the right to the shareholder to vote on the corporate matters .policy and to elect the Board Members. Mostly the companies issue Common stocks. The dividend paid on these stocks is not fixed and would vary. The return on the Common stocks is much higher than in any other investment, but this return are with cost as common stock involves maximum risks. If the company goes bankrupt or chooses to close down Common stock holders are only paid after the preferred shareholders, bondholders and the creditors are paid. The biggest benefit of a common stock is its can be converted in cash, that is can be liquidities very fast.
PREFERED STOCK : A Preferred stock is also known as known as Preference share or Preferred share, is a higher ranking stock then the Common stock, and its terms are negotiated between the company and the investor. Preferred stock generally does not carry a voting rights but it does carry priority over the Common stock in payment of dividend and upon liquidation. A Preferred stockholder has option to convert his stock to common stock after predetermined dates, which are called CONVERTIBLE PREFERRED SHARES.
WHAT MOVES STOCK PRICES.
Stock prices are directly related to the company’s earnings, but what exactly makes this prices move? There are no hard and fast rules to this. The news report of a specific company would make the investors have more stocks of it or the negative news can make the investors move out of those companies’ holdings by selling them.
The other reason for the market to sway is countries attempt to correct the inflation. Â Generally changes the stock prices are affected if the If the country usually higher or lowers the interest rates
According to analyst, amateur investors also can be a reason to move the stock market up and down. Amateur investors out of inexperience normally make decisions on press releases or rumors
The day traders are also considered the major contributor for the ups and downs of the stocks, as they generally deal in huge numbers of stock which affect the stock.
If the companies are able to show that they have met or exceeded their profit margin , the stocks of the company will automatically go up, but if vice a versa .. If company falls short in meeting the profit margin the immediate reaction of the investors would be to sell the stock holdings of that company.
So to conclude, there is no exact reason for the stock prices to move up or down
Success in investing comes not with how and a dash of luck, but with analytical and cool mind.
MARKET TREND: BEAR OR BULL!!!!
Where these names do came from?Â Remember bears are sluggish and bulls are forceful. The bull flairs its thorns up when tries to attack its prey and the bear swipes downs, this is metaphorically depicted in the stock market. When the market has trend is upwards it’s said to be a Bull market and Bear market when the trend hits the downward graph.
A bull market trend is associated with increasing confidence of the investors, and anticipation of the future rise in the prices which would motivate the investors to buy the stocks. India’s Mumbai Stock Exchange Index, SUNSEX, was in the Bull Run for almost five years from 2003 to 2008.
A Bear market is a steady drop in the stock market over a period of time. It is accompanied by pessimistic approach taken by the investors anticipating future downfall in the prices and hence starts selling the shares. No specific definition is available for the Bear market. But one generally accepted measure is a price decline of 15 % over a two month period of time.