Let’s first start with what stocks are. Stocks are essentially a piece of ownership in a business or company. This is an important definition because underlying the value of a stock is the value of the business.
Note that Stock Price is not the same a Stock Value. Stock Price is the price of buying or selling a stock based on supply and demand in the stock market. Stock Value is the actual value of a stock based on the revenues, profitability and future potential of the business.
Alright, let’s go back to the question on how you should invest in stocks.
There is one critical question which you need to answer first. Do you want to gain in the short-term, under a year or do you want to have gain over the long-term usually more than a year or so?
If you only want to make gains or profit in the short-term, then what you’re looking for is to speculate in the market. News actually affect stock price and if you want to speculate, you ought to be closely monitoring news and acting quickly to benefit from price swings.
If there’s good news about the company, in the short-term you would expect an increase in the price. That would mean you should buy that stock now and then sell after the price increase. On the other hand, if there’s bad news about the company, you would expect the stock price to decline. In this case, you’d like to buy at a later date when stock price is lower.
Now that we’ve gone through the basics of speculation, let’s talk about investing.
Stock value should not be affected by short-term news. Instead, stock value is affected by the management team, business decisions and prospects of the business. So if you’d like to invest in stocks for longer term gains, it’s worth studying the company’s business fundamentals.
There are of course alternatives to stock market investing. Another way to grow your wealth is to put your money in a high-yield savings account. With Qinta, you will earn market-leading returns (earn up to 10% APY) and you will also be equipped with a smart financial goal planner so you can achieve your financial goals faster. Get early access by signing up here.