All you need to know about basics of Stock Market (how to start investing)

Stock Market – a term we hear almost daily. Either our family, friends, or someone we know has invested in the Stock Market. We are told that it is a factor affecting the economy. But what exactly is the stock market and does a change in it impact the nation’s economy? With the world struggling for a revival from the recession brought on by the pandemic, it seems like an apt time to understand what everyone has been talking about.

If you are new to the world of investing and have little to no clue about the stock market, you’re in the right place.

What is the Stock Market?

Let us start with an example, to make this easier to understand. Imagine a clothing business, which manufactures, prints, and sells clothes. Now this business wants to grow. Many-a-times, banks and private investors find it risky (or not worth it) to invest in small ventures. Therefore, many small companies opt for an Initial Public Offering (IPO).

To learn more about IPO, read full article here.

Through an IPO, the business raises money by offering a share of the business to the public. These funds are generally intended towards the growth of the company – hiring larger teams, new product/service development, technological advancements, equipment to boost manufacturing, etc. Such investments into the business result in profit.

When the company starts showing growth, the value of the share increases. This could generate the interest of more people to buy shares of the company. It could also lead some investors to sell shares and make a profit in turn.

This is where the Stock Market comes into play!

The Stock Market allows for the trade of the shares to happen. Those looking to buy or sell the shares, do so with the respective country’s Stock Exchange.

Now, once the clothing business starts performing well, it may opt to return some portion of the profits, back to the investors. This is called “dividend”. Though it is not a must for the company to do so, it may choose to offer dividends to investors, as means to attract new investors.

The Index

The Index is the particular Stock Exchange where the various shares of companies are listed for buy and sell. When a bunch of shares from different companies are pooled together, it is known as an Index fund. It is generally a pool of shares from the top performing companies, put together according to performance, in order to boost shareholder interests.

To read the smartest investment tips, read full article here.

Index funds are among the safest (yet good yield) options when investing. It saves an investor the time and effort to seek individual companies and target a portfolio for balance.

The darkness around Stocks

While the selling of shares allows businesses to grow, increase employment and enhance the economy, there is always a catch.

The share prices of companies work mainly on speculation. This means, the perception of the public investors, regarding the company’s future value, has a major role to play. A drop in perception could result in a decrease in share value, while a boost in interest could soar share prices.

This paves way for large stakeholders to try some unethical means. “Buyback” is one such way, wherein companies buy back a bunch of shares from the public, creating an artificial crunch, which ultimately leads to a spike in demand due to a fall in supply. Further, this may also lead to a rise in the price of the share.

Sometimes, investors may push companies to boost share prices by issuing bigger dividends. Though this results in short-term bursts of profit, this impacts the economy negatively, by lowering wages and troubling overall production, since capital needs may not be met.

The ultimate power to make or break the growth of small and medium-sized companies lies with the public. These are the companies which rely on public funding for growth. Such companies make the stock market interesting and continually rolling. Choosing potential of a company over shiny exteriors could bring back the glory of the origins of the stock market, which started with a few men trading share certificates on Wall Street.

Identifying and investing in the right companies could prove to be the high-value assets needed in our future.

What about the Stock Market, trading or investments perplexes you? Let us know in the comments below.