- You're not buying a stock; you're buying a company.
- The primary reason you invest in a stock is because the company is making a profit and you want to participate in its long-term success.
- If you buy a stock when the company isn't making a profit, you're not investing — you're speculating.
- A stock (or stocks in general) should never be 100 percent of your assets.
- In some cases (such as a severe bear market), stocks aren't a good investment at all.
- A stock's price is dependent on the company, which in turn is dependent on its environment, which includes its customer base, its industry, the general economy, and the political climate.
- Your common sense and logic can be just as important in choosing a good stock as the advice of any investment expert.
- Always have well-reasoned answers to questions such as "Why are you investing in stocks?" and "Why are you investing in a particular stock?"
- If you have no idea about the prospects of a company (and sometimes even if you think you do), use stop-loss orders.
- Even if your philosophy is to buy and hold for the long term, continue to monitor your stocks and consider selling them if they're not appreciating or if general economic conditions have changed.
- Earnings: This number should be at least 10 percent higher than the year before.
- Sales: This number should be higher than the year before.
- Debt: This number should be lower than or about the same as the year before. It should also be lower than the company's assets.
- Equity: This number should be higher than the year before.
A stock, in simple words, is a share in the ownership of a company. Starting and expanding a company on a large scale needs capital, something which individuals or group of individuals cannot afford. The company, therefore, offers to sell its share to the general public. When a company sells it's privately held shares to new investors for the first time, it is called an IPO-Initial Public Offering or going public.
For example, when you start a company you can issue five shares to raise capital. So each share would be worth 20% or one fifth of the company's ownership. Therefore, if an individual holds one share and buys another, he owns 40% or two fifth of the company. It must be understood that in normal course a stock, share or equity mean the same thing.
The idea underlying the ownership of a stock is that the shareholders can make claims to the profits and assets of the company.
The fact, however, remains that every public traded company normally issues millions of shares. Therefore, owning a few shares does not mean that you can visit the company any time and start issuing orders or inspecting the records. A stock holding only gives you certain rights such as voting to elect the board of directors of the company or owing some assets.
Normally the ownership of stock is represented by an attractively designed and important stock certificate, which is actually a piece of paper that represents a share or ownership of the company. With the advancement of technology investors usually do not get those paper certificates like their old time counterparts. Stock ownership is, therefore, recorded electronically.