When an investor buys shares in a company or organization, they effectively buy part of that company or organization, or part of it if you want. Furthermore, the company’s performance will determine the value of shares, and overall investment. Because stock performance is related to earnings, companies that perform well will see an increase in the value of shares, with the opposite effect associated with companies that perform poorly.
Investors in a company are called shareholders, and they receive payments in the form of dividend payments that fluctuate in the company’s overall performance.
Investments in stocks are also known as ‘stocks’ and ‘equity’, and the stock market falls into two separate categories, the primary market and the secondary market.
There is only one reason for companies to sell shares and that is to increase capital to develop it. The company does this in two ways.
Issuing shares on the stock market for the first time, also known as ‘floating’. Companies that have floated and offered new shares to increase capital.
Most investments in shares are in the secondary market, where company shares are traded every day. Price movements are relative to the company’s performance over time and demand for shares can also push stock prices up.
Share prices are reflected by supply and demand. Stock prices rise when demand for certain stocks is high. In other words, when more investors want to buy shares in the company than sell them. The stock price will decrease when more people want to sell shares in the company than buyers. Lower stock prices make stocks more attractive to buyers.
There are other factors involved in determining stock prices with events in the wider world playing a role, as well as investor psychology. Factors that determine stock prices are broken down into geopolitical and economic (macro) factors, and factors related to (micro) companies.
Macro factors include political events, unexpected events such as terrorism or natural disasters, forecasts, interest movements, and legislative changes, while micro factors are centered on corporate profits, mergers and acquisitions, competitive activities, stock valuations, and management changes.
If you are considering investing in stocks and stocks, the golden rule is to spread risk and not put all your eggs in one basket.