Buying Stocks in 2018 And Beyond | It is Easier Than You Think
It is the year 1288. In Sweden, Bishop Peter acquires a mining license for copper ore. The further process can only be surmised because of missing records, but it is to be assumed that the bishop did not have enough capital of his own to operate the copper ore mining.
Therefore, he issues eight stock certificates, which make over to the respective buyer the corresponding part of the mine and the profits generated thereof.
One of these stock certificates has been preserved to this day and it proves the incorporation of the demonstrably first joint stock company in history.
Possibly there were public corporations before, verifiable so far is only the "Stora Kopparbergs Bergslags Aktiebolag". The company usually called Stora still exists today, belonging to the Finnish group Stora Enso.
Stocks or shares are therefore quite old. However, trading in stocks and founding public limited companies only gained momentum with the industrial revolution. Day trading continues to be popular since the turn of the millennium
Without this form of capital participation in the economy, modern democracy probably would not exist.
Consequently, joint stock companies are important components of the social market economy, although this is often not understood. How you, too, can become a shareholder is explained comprehensibly in this article.
What are stocks?
Stocks are securitized equities either in a joint stock corporation, a European company (SE) (in Europe) or a limited partnership on stocks. A stock is a security and its respective holder is called a shareholder.
As such, he or she is a co-owner of the stock capital or the shareholders' assets of the company. The initial price of a stock refers to its number, then it is called a no-par value stock, or its par value, corresponding to par value stocks.
The difference between a no-par-value stock and a par value stock payment is that the value of a no-par-value stock consists of the stock capital and the number of existing stocks.
Simple example: the stock capital of AG XY is one million USD. It issues 100,000 no-par-value stock, so each stock has a value of 10 USD.
Incidentally, it is unlikely that it will issue more than one million stocks, as the stock value may not fall below 1 USD under the law.
The now rather rare form of par value stocks also applies to the stock capital, but the company's Articles of Association state that the stock has a face value. This must again be at least € 1 according to the Stock Company Act.
Another example: the stock capital of AG XY amounts to one million USD. It now issues 200,000 par value stocks in the respective value of 5 USD.
For both the no-par-value stock and the nominal value stock, the actual market value is independent of the stock capital.
But that's not all. Stocks may also differ in bearer and registered share as well as common and preferred stocks.
First, something about the registered stock increasingly rare. These are stocks in companies whose owners are entered in the stock register of the respective company with their names and addresses.
If registered stocks are sold, this change of ownership must be changed in the stock register so that the new owner can exercise all the rights associated with the stock.
A special form of this is the so-called restrictedly transferable registered stock. It can be sold by the shareholder only with the approval of the corporation.
This protects stock corporations from unwanted shareholders becoming partners.
In critical industries such as defense and aerospace, lawmakers may even force the joint stock company to issue restrictedly transferable registered stocks, as is the case with the airline Lufthansa.
The Federal Government thus ensures that the majority of Lufthansa AG remains German-owned.
Before we talk to the most important, because most traded stock variety, something about ordinary and preference shares. Registered stocks as well as bearer shares may be either ordinary or preference shares.
The ordinary share has voting rights. The respective owner is thus in a position, for example, to make use his voting right at the Annual General Meeting and, for example, have a say in the discharge of the Board of Directors.
The preference stock, on the other hand, lacks this voting right and may, among other things, be endowed with a higher dividend.
Now to the bearer share – this is the most important stock for stock exchange trading, because it is relatively informal and thus quickly transferred from one owner to another. Whether the bearer share is a common share or a preference matters only insofar as it touches the purpose of owning the share.
For one investor, a preference stock may be the right option because of the higher dividend payout, the ordinary share might be preferable for someone else because he or she wishes to have a say in the company's business policy.
Incidentally, not every company issues preference stocks and, if so, only up to a maximum of 50% of the stock capital.
The vast majority of all the stocks traded on the stock exchange are at the same time:
- ordinary shares
- bearer shares
- no-par-value shares
To summarized once again, most stocks relate in value to the capital stock. Stock capital divided by the stock count results in the nominal value of the stock but not the market value.
They are no-par- value stocks. At the same time, they are bearer shares. Everyone can buy and sell them without giving or depositing their own name. Ultimately, these are also ordinary shares, the owner has a voting right with the share.
Trading stocks – are there alternatives?
Admittedly company laws are sometimes complex. And we’re just talking about the basics! Exchange trading is rife with technical jargon and when brokers talk to each other, a layman will hardly what the conversation is about.
Opposed to this are forms of investment that are popular such as the savings account, call money or time deposits. All three make real losses due to the current interest rate policy. Average inflation of ~2% is offset by returns of 1 to 2% per annum.
Of course, there is also the easily understood notion that equity investments can cause losses, even total losses. Stocks are often associated with the stock market crash and the global economic crises.
However, neither in 1929 nor in 2008 share or joint stock companies triggered the subsequent global economic crises. The holders of the stocks were among others the victims of various political as well as economic decisions of different institutions.
Both in the 1920s and in the new millennium, the major crises were preceded by more than careless lending by banks stimulating enormous economic growth over several years that ultimately had to collapse. See also the article "Gain money".
Looking at the stock market over the last 100 years or so, it has proven superior to any other form of investment, despite all the crises that occurred during that period.
Especially the preceding century with two world wars, hyperinflation and political changes from empire to republic, followed by a brutal dictatorship up to today's democracy, proved one thing clearly:
Stocks retained their value and proved enormously increaseable. More resistant than currencies and even more resistant than precious metals such as gold. Not a few of the blue chips in the Dow Jones index have a history going back to the 19th century.
These companies have mastered crises and survived. As an example one might cite the large US stock index Dow Jones with its more than 100-year history.
The Dow Jones started in 1915 at 1370.3 points and stands today at just under 22,000 points. In its almost 60-year history, the DAX has grown its portfolio from 370 points to more than 12,000 points.
While Dow Jones and DAX can point to more than a thousand percent increase in their development, gold as an investment has not been quite so successful. The real gold price has risen on average by about 150% over the past 100 years.
Buying stocks for dummies
Well, the stock market is made up of thousands of different companies whose stocks are traded on the stock exchanges of the world. For a beginner without basic knowledge, it is difficult to make the right decision.
First of all, however, a securities account is required because listed stocks can only be bought and sold through an authorized broker.
Today these are predominantly online depots, enabling further functions. But just a glance at the graphical interface of a conventional online depot will confuse you as a beginner.
Therefore, the safe variety of a model depot should first be selected. In this model depot you can let off steam to your heart's content without having to take any financial risk.
You get to know important terms and the handling of different commands.
There are numerous providers on the web who enable the opening of a sample depot. The respective depot should have the following prerequisites:
- Completely free
- Real-time prices
- Watch list
- Banking Glossary
But that's not all. Many a free sample depot miraculously performs excellently, then, after the future shareholder switches to a real securities account, the previously theoretically displayed profits are suddenly no longer quite as outstanding.
These sample depots are simply manipulated to entice the new client to open a real depot. With sample depots you take no risk. In the next step it is important, to chose the best online broker for your individual trading goals with the best possible trading platform.
Practice makes perfect – and that goes for you, too!
Successfully investing money in stocks is not a science. Especially since you can easily look at other sample depots, what’s included in their portfolio and how they perform.
Here you can distinguish two investor types – the classic equity investor who is looking for a good long-term performance of "his" stocks, or the day trader who wants to make a profit out of short-term price swings.
The investor, intending to invest earnings in a way that generates the highest possible return over a one-year period, without taking excessive risks, will look towards the DAX for guidance.
Anyone willing to take greater risks for higher returns must, of course, be more deeply involved in the matter and assess the prospects of promising companies.
After practicing with model depots, it's about time to open a real depot. Pay attention to the costs, among other things. The depot opening itself should definitely be free.
However, one cannot avoid costs or fees entirely because every purchase and sale order has to be paid for, brokers live off this, after all. Besides there are the costs for the deposit management.
The difference in costs incurred is reflected above all in the amount of purchase and sales orders. The more stocks are traded, the higher are the order fees incurred. And there are other aspects to be considered.
Is it a pure stock portfolio, or are other banking services offered, such as a current account and a credit card? After all, internal money transactions are usually cheaper than such made from bank to bank.
A general statement on the costs cannot be given here, as they are subdivided according to order volume and order quantity. A good way to stake out your own cost of buying and selling stocks and finding the best deposit for you is shown on Nerdwallet, which offers a comparison chart listing the cheapest providers depending on order volume and number of orders.
You might even find your house bank among them – the number of direct banking customers is steadily on the increase and direct banks are often the ones offering a full range of services from the current account to the stock depository.
Conclusion about buying stocks
Money earned that is now to be invested is in any case better kept in a stock portfolio than under the pillow or in a savings account. Even in retrospect, the much-praised savings account at its best generated maybe 4% interest on the invested money.
The investor did not have to worry about anything. But was or is it worth it? Simply out of a lack of will or because there are fears of making mistakes or trusting the wrong people?
Buying stocks has been the means of choice to manage one's own money for many decades. It can’t be that bad to invest money in stocks, because if several millions people would lose, a different system would have been devised long ago. Investors must rid themselves of the notion that equity investment means is tantamount to financial suicide.
The best possible information and various sources are available for background knowledge. Anyone investing in stocks is therefore able understand into what kind of business they choose to invest. No one is coerced to engage in truly adventurous products, such as specialized financial derivatives. Artificial Intelligence can help to find the right investment opportunities. Trade Ideas is the market leader with their Artificial Intellgence based stock screener.
With a little bit of determination and a bit of time, no one needs to depend on the zero interest rate policy of the central banks, at least not where investments are concerned.
Besides, buying stocks is no longer a game of chance for beginners, with success depending on the consultant of the house bank. All relevant information is just a few clicks away.
So here’s the good news: Buying stocks is no longer the monopoly of the wealthy!
#Buying #stocks – It is easier than you think | via @DAYTRADINGz