Why are stocks issued?
Companies issue stock primarily to raise capital. There
are basically two main ways
of raising capital; borrowing
(debt financing) or selling the
company by issuing stock
(equity financing). The latter
is more advantageous because there is no need to repay the money together with
interest. For private companies, their first stock-issue is
referred to as the initial public offering (IPO).
How does one get to buy
stocks?
Know why you are
investing
Look for a company to
invest in
Open an account with a
stock broker
Monitor your portfolio
What are the risks?
What causes price changes?
Stock price changes are influenced entirely by forces.. This is
simply supply and demand. So
why bother with the stocks?
One factor is the positive and
negative news about a company
which certainly breed a particular perception about it. For
instance, if the company has
been involved in illegal deals,
the price of its stock will definitely fall as people lose confidence on its future. On a positive note, stocks can soar high
when an acquisition or merger
is announced.
Securities/Equities
Stock Certificate
Brokerage Firm
Primary Market
IPO
Secondary Market
Debt Financing
Forces
Dividends
Buyback
Liability
What are the benefits?
The stock owner has one vote
per share to elect the board of
directors at annual general
meetings (AGM’s). In addition
to that, you receive a share of
profits in the form of dividends
which are paid quarterly or
once a year.
As an investor your portfolio
gets to grow when the value
of the stock appreciates. At
this instant, you can make a
profit when you sell your
holdings. Profits can also be
realised from stock buybacks
i.e. when the company decides
to buy shares from its owners,
usually at a price higher than
the market price.
The aforementioned returns,
however, come at a cost. First
of all the listed companies are
not obliged to pay dividends.
The management may decide
not to do so in order to invest
profits in capitalising expansion projects. Second, the
pricing of stock is not always
on the rise . As an investor,
you can lose a great deal of
your investment when prices
tumble. One other way of losing is when a company files
for bankruptcy and is li