What are stocks?

A stock is a share or share that represents a small unit of ownership in a company. If you buy shares in a company, you have acquired a certain share of ownership in this company.

You can own the shares yourself (direct investment) or you can pool your money with other people’s money and include them in a collective investment (investment funds). Mutual funds buy a group of shares that are selected and managed by the fund manager. If you put your money in the fund, you do not have to make individual investment choices.

When you own the shares directly, you become a shareholder in the company, which usually means that you have the right to vote on some of the company’s decisions. This does not happen if you are investing in an investment fund.

Shares are bought and sold on the stock exchange or stock market.

How does the stock market work?

It is necessary to understand the nature of investing in the stock market first. Investing in things whose details you do not know can lead to losses and financial risks. What are the most important things that you should know before investing in stocks?

Investing in stocks means buying them and holding them for a period for financial gain. Money is earned from stocks in two ways:

If the company achieves growth and becomes valuable, the value of its shares will increase, and as a result, you will make a profit by increasing the value of your investments in this company.

Some companies distribute profits each year for the benefit of their shareholders, called cash dividends.

If you buy shares in large and long-term companies, you will receive dividends but without a rapid growth in the value of the shares. Dividend stocks are good if you are a long-term investor and are looking for a stable income rather than a big increase in stock prices.

As for small companies, they often do not distribute annual profits to their shareholders. These companies have a greater opportunity to grow quickly, which gives a greater growth rate for the invested capital, but the risk ratio may be higher. [1]

Ways to invest in the stock market

How do you start investing in the stock market? It is possible to invest in the stock market on an individual level either directly or through investment funds:

1. Buying and Selling Shares:

If you prefer to buy and sell shares individually, and rely entirely on yourself, (you can always use an expert or financial advisor). You have three options for direct investment:

Online broker

Traditional stockbroker

A financial advisor or investment manager where you can ask him to buy or sell shares on your behalf, and they will do that, of course, through a broker or broker.

2. Investing through an investment fund:

In a collective investment, many people put their money in an investment fund, and it is invested in stocks or other assets, such as bonds, cash investments, or investment properties of the choice of a professional fund manager.

You can invest in mutual funds either through banks, a fund manager, a financial advisor, a traditional broker or an online broker.

Profits and risks of investing in the stock market

Stock prices can also go down, so buying stocks is not without risk, but in the end, it can bring good financial returns. If you want to double your money in a year for example, then stocks are not the best way to do it, but if you intend to invest your money for 5 or 10 years or more, the stock market is a profitable option in the long term.

Stocks are designed to provide investors with two types of return, annual income and long-term capital growth.

Most stocks offer income in the form of dividends, which are usually paid twice a year. Dividends can be considered as a bonus to shareholders. Dividends are distributed when the company makes profits and has liquid funds after it has fulfilled all its obligations.

In most cases, the more profitable the company, the higher the dividend. If the company earns large amounts of money and pays out large dividends, it is usually considered a good investment and therefore the company’s share price increases.

You can invest in stocks specifically to get a stable income. Many companies make significant financial profits each year, and may use part of their profits for general corporate purposes, such as paying rent and wage bills, and companies may use part of their profits to invest in equipment, research and development. In return, its dividends are distributed to its shareholders, and since dividends are usually paid twice a year, they can provide investors with regular income.

Companies that pay generous dividends are known as income stocks.

Some companies have huge investment programs, so they reinvest all their profits, these companies are often at an early stage of their development and keen to expand and grow, they are known as growth companies. The share prices of these companies rise when they succeed in achieving their investment plans. [2]

Long-term capital growth occurs when the stock price increases over a certain period.

The investor in the stock market is the one who chooses a company’s stock after he learns about the company’s performance, gets acquainted with its services and the strength of its products, and reviews its quarterly financial statements (quarterly, semi-annually) and the financial statements at the end of the fiscal year. It compares the company’s performance in different annual periods, or between the company’s performance and a competing company. This method is called fundamental analysis. This method is followed by whoever wants to make profits from his expectation that the stock will rise within several months or years, or even receive profits from the company in return for carrying the company’s shares.