The main advantage of investing in stocks? With a modest amount of resources you can access investment in large companies!
Although they do not give an investment guarantee, they do have some additional benefits, such as dividends. The dividends often allow the people involved to “apply for early retirement”. The context is that they got so much money that they will be able to support their needs for more than two decades, on average. But to make a lot of money trading, one must understand very well how trading works.
One of the characteristics of shares is the ease and speed with which they can be sold on the capital market at a fair price. This attribute is called liquidity. Liquidity is the extent to which a security, in this case shares, can be converted into money and can be observed through some indicators such as:
– The amounts that are traded in that particular action.
– The stock market presence of the security, which is the number of days in which transactions of that share are registered in relation to the total of business days of the period and,
-The number of shares that are traded in relation to the total number of shares outstanding (index called share turnover). Thus, stocks that have high amounts traded, stock market presence and turnover will be more liquid than others that present lower levels in these indicators.
Each share title offers investors a combination of expected return and risk, associated with the economic sector in which the company’s activities take place and with the company’s own characteristics. The future profitability of a share is uncertain, therefore, the decision to buy or keep the security is made based on the expected return. There is a wide range of shares in the market, which allows there to be more than one investment alternative for each of the different types of investors.
Investors can form an investment portfolio with different stocks, in such a way as to compensate for the volatilities of one another. Adequate diversification is not only achieved by choosing different shares of the same risk class (same industry), but also several shares of different risk class (countries, sectors and investment terms). Investment portfolios? Diversified investments are more efficient than investing in a single share, that is, they allow an increase in expected profitability without necessarily increasing risk.
Access to the Instrument
The transaction of a stock title on the stock market? Can it be done through a stockbroker? This type of intermediary is regulated by the securities law and by the regulations of the CMF.
The operation of public limited companies? It is regulated by the corporations law and the securities law, and they are also supervised by the market commission.
The return of a share comes from the company’s business, the dividends received plus (minus) the capital gains (losses) generated by the price differences between the time of purchase and sale. Sometimes price changes are the main component of the return on an investment in stocks. As noted, these returns are variable, said variability being a measure of the risk associated with investing in stocks.
On the other hand, the dividends received by shareholders depend on the results of the issuing company of the shares they own and to the extent that these are positive and permanent, the shareholder will be able to have a stable flow over time. Fluctuations in the price of a share are mainly caused by changes in expectations regarding the future profits of the company, therefore share prices are essentially variable.
Furthermore, the company’s profit expectations depend on factors that are not directly related to the economic activity carried out by the company, such as the general economic situation in the country and the business environment.