Share Investment & Stock Trading
Before we discuss the topic of Share Investment, we must first understand what exactly are shares. Generally, shares refer to the units of ownership of a particular company. When a company is formed by one or more company, the total amount of shares is predetermined and usually divided based on the amount of capital contributed by each party. Each party will then receive a number of units of shares.
For large companies, these units of shares are usually offered to the public for purchase, as a form of investment. After an Initial Public Offering (IPO), the shares of these companies are traded on a local or overseas stock exchange.
Before anyone do any Shares Investment, first of all, it is important to understand how the value of the shares is being calculated. Is the current price of the shares under valued or over valued? An investor should first do his “due diligence” on deriving what he feels is a fair value of the shares before investing his money on any company’s shares.
Secondly, anyone investing in shares should also define his or her own investment goals. Is it for capital gain or for dividends? For capital gain, Is it a short term or medium term or long term goal? This should be in line with the growth potential of the company. For example, if a company is going to develop a new product or service over the next 2 years and the investor strongly believes that the product or service is going to succeed, then it is okay to invest in the shares of the company. On the other hand, Shares Investors going for dividends will tend to target stable companies issuing the highest dividends and may switch their investments every quarter or yearly depending on the performance of the company.
There are also investors who treat shares investment as a form of speculation. These investors hardly look at the financial fundamental analysis of a company but mainly based their investment decisions on technical analysis. This means that they will based their investment decisions to buy or sell a company’s shares mainly on chart patterns.
Besides looking at the goals, timeframe and method of analysis, anyone undertaking share investment should also consider carefully the risks involved. When investing in a company shares, it is important to realize that it is possible for even very large companies to go bankrupt, and the shares become worthless. Less extreme cases would be scenarios whereby a company is in a sunset industry eg. Manufacture of Film for Cameras or in a industry where there could be sudden changes in products prices eg. Oil. Another risk to consider is when investing in Shares listed overseas. Besides the risk of the shares itself, the investor is also faced with the risk of currency fluctuations. For example, if one is to investment in shares of a company listed in Malaysia, even though the share price has increased 10%, but the currency of the country dropped 20%, the Shares Investor still loses 10%.
It is not possible for short article like this to list all out aspects of Shares Investment and the risk involved. Depending on the response and request of readers, we may in future publish more in depth articles on certain areas of shares investment to benefit our readers.