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Sunday, August 17, 2008

What is a Stock?

You are finally to the place where you have paid off most of your debt and are ready to start investing in the stock market. You may have many goals that you are hoping to fulfill in the market - from retirement to an European vacations. That's the first step already down: you know why you want to invest. Now you just need to know a few basics that tell you how.

The first thing you must do is learn how to understand stocks. A share of stock is the smallest unit of ownership in a business or company. If you own a share of a company's stock, you are basically a partial owner of the company.

With your ownership comes the right to vote on members of the board of directors and other important matters that the company must decide upon. If the company distributes profits to its shareholders, you will probably receive a portion of this profit based on how much stock you own.

Many financial advisors suggest stock ownership due to the limited liability. If a company loses a large lawsuit and is ordered to pay a huge judgment, you stock simply becomes worthless. You won't have to sell your personal assets in order to keep the company up and running. If you are a stock owner, you don't face a lot of the situations that a full fledge business owner could face. For example, creditors can't come after your personal assets, but they can in private-held companies.

There are two basic types of stock: common and preferred.

Common stock represents the majority of stock held by the public. The stock has voting rights of the owner, as well as the right to receive dividends. If a stock is being referred to as either "up" or "down"," you know that the stock in question is a common stock.

Preferred stock has fewer rights, except for dividends. Companies with preferred stock usually pay consistent dividends. Preferred stock has first dibs at the dividends and profits.

Investors often purchase preferred stock for the current income from dividends. They are looking for companies that make big profits and use preferred stock to pay out dividends.

Common stocks are highly liquid, in most cases. Small companies may not be traded frequently, but if you purchase a large company stock, there are daily opportunities to buy and sell shares.

Beginning investors should take the time to read all they can about how stocks, trading and investments work before they jump right in. Know what stock sectors there are, know the market index, how dividends work and the different types of stock. All of these will assist you in becoming a better investor.

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Should You Invest in Emerging Markets?

As a stock market investor you should look to invest where you can get better returns. With the stock markets being the first and foremost vehicle to get better returns on your money which is invested make sure that you look all around the world for investment.

First of all let me describe what emerging economies are and which countries are considered to be emerging from the economic development perspective.

America and most of the Europe is considered to be developed and the markets are generally saturated. That translates into say as a company selling products the growth in demand is only about 3% to 4 % on an annual basis.

In the emerging markets the growth is coming from the demand because the country is till developing. There are new roads and facilities being built. The lifestyle of people is changing and hence increased demand of lifestyle products. For that new factories are being built and there is demand for cement, steel and other materials. This means that overall growth in demand on a year on year basis is much better than 3% to 4%. Most of these emerging economies have growth rate of 10% to 15%.

Some of the emerging economies are India, Brazil, China and Russia. Then there are others like Argentina, Vietnam and a lot of South American countries. In fact the first four I mentioned are known as BRIC economies a termed coined by a Goldman Sachs report on emerging economies.

The stock markets of all these economies are doing very well as all the listed companies are growing fast and hence there stock prices are rising. Seeing that, a lot of companies from the US are investing in stock markets in emerging economies. This again is leading to huge price increases leading to a windfall of profits for investors.

As you try to explore your options for investing in the stock markets abroad you have two options. One is to try and invest in these markets by yourself. There are a lot of ways to do that should you do your research. The other way is to invest in ADR of these companies listed in the NYSE.

The best possible option that you have is to invest in emerging market mutual funds of a various mutual fund companies. This is the best route as you can gain exposure to international market without the actual hassle of going through investing directly in the stock market of the emerging nation.

The author has stock market for beginners lessons as help. He has a resource on stock market for beginners investors for new investors

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Are You an Investor Or Trader?

Have you ever asked yourself if you are an investor or a trader?

Both investor and trader have a common objective. That is to make money out from stock market.

Then, what is the difference between them?

Investors view stocks as an asset and partial ownership of a company. They are market participants who is looking for capital depreciation and dividend pay out as the company grows. Usually, they do nothing after owning the stock and hope that that stock price will grow as anticipated or to give them a hefty dividend.

Investor tends to do more analysis on the fundamental of the company, they look for the financial performance in details. They can dig into the ROE, PE ratio, debt exposure, cash flow and even the management. They are usually prepared to hold the stock for a longer term.

Investors usually are not worried so much by the day to day market volatility. Instead, they are more interested in the quarterly, half-yearly or annual report to know how the company progresses.

Let's take a look at the trader.

Traders view stocks as an inventory and they run it like a business. They are market participants who is looking to profit from the price difference in market volatility. They will start buying the stock as inventory holding during an up trending market and start unloading their stock as the price moves higher. Similarly, they can start selling the stock first and then replenish the stock inventory at a later date when the market is bearish.

A trader cares more about the market sentiment more than the company. Trader tends to do more analysis on the stock price pattern, the trend, the market sentiment or market psychology. They look at the market as a business place to fulfill both the demand and supply and eventually profit from it. Trader usually tends to hold the stock for a shorter period, which can vary between hours to days to months. Usually trader are not prepared to hold stock for years.

Trader likes to have market volatility because that creates price difference for them to profit. Usually, they follow more on the majro economic or business news and like to analyse chart.

Having know the difference between investor and trader, which one would you like to be?

KP Yang is a private trader are passionate about invest and make money in the stock market. He also enjoy using technical analysis to study the market trend and formulate trading strategies based on TA. He shares his view on the market on his blog at: http://www.investmoneylab.com - "There is NO Secret Ingredients. That's just YOU" - Kungfu Panda. He believe practice makes perfect, everyone can be successful in the stock market by constantly learning, practicing and taking action.

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