When you buy and own a stock or a share of a company, it means that you own a portion of the company. And depending on the number of shares you own, you can be a major stock holder or simply a minority or small investor of the company.
Stocks can be bought or sold in the stock market. It used to be done through phone calls through stock brokers and could take hours or even days to complete but these days buying and selling is normally done on-line and can be completed in a matter of seconds. This is how quickly one can make or lose a lot of money these days so you have to be very very careful when investing your money in the stock market.
You can make money in the stock market if you bought a stock and its price went up and then sell it for profit. The problem is no one knows if the price is going up or down and when. This is why investing in the stock market can be risky if you are not familiar with it and have no idea which shares to buy. Buying stocks from large and seemingly solid companies may not be too risky but things can still go wrong and you can end up losing money.
There are many factors contributing to the price of the stocks such as the company or its industry’s performance and outlook. The geopolitical situation can also contribute to its price as well as the overall sentiments of investors so no one can really predict where the price is going at any time. This is the reason why picking and buying individual stock is very risky. Putting all your money in a single company’s stocks is taking an extremely high risk. As I explained in my previous notes, taking high risk gives you the chance to earn big but you also have a high chance of losing your money.
No one knows what will happen to the price of any company’s shares so don’t listen to anyone who says they know for sure what’s going to happen to a particular or individual stock. Don’t believe even if it’s your friend, relative or any celebrity or influencer saying that they know what will happen. Maybe they will turn out right once or a couple of times but the fact remains, they are just guessing. Even if you missed out on a huge profit after you ignored them, remember that it could have gone the other way. So don’t regret it and stick to a sound financial and investment strategy that do not depend on luck. Predicting a stock price is a game of luck so don’t depend your financial strategy and future on it.
If you are new to investing, I highly recommend to avoid picking and buying an individual stock, and if ever you still decide to do it, never ever put all your money on it. The maximum I will put my money on a single stock is 2% of my total portfolio. This means that my stock investment is spread across different stocks on different industries.
There’s a way to invest in the stock market without having to put your money on one or only few stocks. There are things called index fund, mutual funds and exchange traded funds which allow you to invest on different companies stocks. This method of investing is called diversification which I will discuss in my next note.
So remember, especially if you are new and not an expert in investing. Never ever pick and buy individual stocks with all or a significant portion of your money.