Investing in Stock Market Shares
Stock is the securities in which ownership of a company is divided up. In ordinary language, the stocks are collectively referred to as ‘stock’. A single share of stock represents a fractional ownership in percentage of whole stock owned by the company. It is possible to buy or sell such stock through exchanges and marketplaces, as well as through private transfer agents. Stocks can also be traded in foreign markets.
Stocks are considered a high-risk vehicle, since it represents the risk of loss of principal, together with the possible appreciation of stock. Thus, a large number of investors are keen to participate in the business and purchase stock. However, if the company goes on to perform well and becomes profitable, the shareholders will be rewarded accordingly.
Private sales refer to sales of stocks by a company to an individual shareholder. These stocks are often sold at discounted prices and the amount realized by the shareholder is not part of the equity of the company. The dividends that the shareholder will receive are from the profits of the company. However, these stocks are subject to the requirements and restrictions of the Securities and Exchange Commission, including applicable federal income accounting laws.
The main advantages of investing in stocks offered by private sales includes: First, this option is less expensive than the other public stock exchanges. Since no commission is charged, this is the most cost effective method of buying shares of stock. Second, because of the limited number of investors allowed to participate in the sale, these stocks offer a higher degree of security. This is especially true for small and medium size investors, who represent the majority of private stock exchanges.
As with any investment, stock market investing also has its disadvantages. The most obvious is that you need to buy stock in a company in which you have some experience or knowledge of. This is not necessarily a disadvantage if you have enough money to pay for the stock market education. The stock market can be an excellent source of stock market trading information, since many companies have websites that give investors historical data on their performance. Investors may also want to study up on the company before making any decisions.
As with all investments, it is important to understand how much control you will have over the ownership structure of your shares, through the voting rights attached to them. Many corporations allow only directors and officers of the company to have ownership stakes. Ordinary shareholders are prohibited from owning shares unless they have an unlimited amount of money available to buy. A large number of investors are intimidated by this lack of control, but in reality, there is no need to invest in shares owned by others unless you want to exercise 100% of your rights. In many cases, companies will work with existing shareholders to create dividend payment plans or other arrangements allowing them greater participation in the company’s profits.