The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market.
What is a share?
A share is a single unit of ownership in a corporation, mutual fund, or other organization. A joint stock company divides its capital into shares, which are offered for sale to raise capital, termed as issuing shares. Thus, a share is an indivisible unit of capital, expressing the proprietary relationship between the company and the shareholder. The denominated value of a share is its face value: the total capital of a company is divided into number of shares.
When you're not familiar with these terms, it's overwhelming and frightening, too. In my own understanding, I compare the company with a pizza.
Imagine a pizza. Hmmmm. Yummy. I'm hungry already!
The pizza is the total capital of the company or let's just say it's the company itself. In order to raise funds, they will divide the pizza into several pieces. Each piece is worth an amount. The pieces of pizza are called the shares or the stocks of the company. These pieces are then sold to the public through a market which we call the stock market. An individual or a group of individuals who bought pieces of this pizza become a part-owner of the company. They are then called the shareholders or stockholders of the company.
When you buy shares of the company, you are called a stockholder or a shareholder. You are a part-owner of the company. Feels good, right?
Okay, so you are now a stockholder of a particular company. How do you gain or profit from it?
For instance you want to put up a small business. Let's say a banana cue stand. If you're not familiar with banana cue, this is a popular snack food in the Philippines of deep fried bananas coated in caramelized brown sugar. Delicious.
But you don't have enough capital to start your business. Let's say you need 100 pesos to start but you only have 40 pesos in your pocket. What you did was to seek help from your two friends named Jun and Julia. So Jun and Julia agreed to contribute 30 pesos each. You now have a total of 100 pesos enough to get your business rolling.
After sometime, you're business is blessed and it's growing steadily which means profit for you and your friends. How do you divide it among yourselves?
Since your total capital is 100 pesos and each of your friends contributed 30 pesos each, 30 pesos out of 100 is equivalent to 30%, meaning each of them are entitled 30% of the profit. Same is through with you since you contributed 40 pesos, you are entitled with a 40%.
This is also the same scenario when you buy shares of your favorite companies. When your chosen companies are growing, your money is also growing. The company share its profits depending on how many shares you have. The profit that was shared by the company is called dividends.
Take note that the company is a business entity so it is also subjected to losing or gaining depending on the economy and other factors that may affect the company. Being a part-owner, you could also gain or lose.
You can make money in the stock market through dividends. Another way is through buying and selling.
For instance, you bought 1 share of company ABC at 10 pesos per share today. The next day, the share price of company ABC soared high to 20 pesos because of some good news about the company. You then sold your 1 share at 20 pesos per share. So you now have 10 pesos profit less applicable taxes. This is called capital gain. Capital gain is a result of capital appreciation or an increase in the market value of the stock you own.
That is just for 1 share. What if you bought more shares, then it means more profit for you.
We now know about the stock market, shares, dividends and how does it work. How do you, as individual, actually be able to participate in the stock market and begin investing?
The buying and selling of stocks or shares are made manually or through online and either personally or through a stockbroker. A stockbroker acts as a middle man. There are many traders who do the transactions themselves but to those people who would rather do other things they would opt to have their own stockbrokers who would do the transactions for them.
For me, I opened an account with an online stockbroker, Citiseconline. This stockbroker is endorsed by Bo Sanchez so I am confident in their integrity. The buying and selling of shares are done electronically so it's easier and convenient for me.
After having your own stockbroker, you're now ready to buy your own stocks.
The next question for me is how do I know which companies to buy. So I joined the Truly Rich Club by Bo Sanchez. Every month, he sends stock updates to all his members. He'll tell you what companies he's investing and how they're doing to give guidance and inspiration. His stock update is very crucial especially during crisis to prevent you from selling your stocks because of panic and lose your money.
Aside from stock updates, he also sends WealthStrategies once a week. It contains life-changing principles and practical "action plans" on how to grow in your financial life.
There are 9 more blessings that you will receive when you join the Truly Rich Club. Click here to learn more about these blessings.
Happy investing!
