Over the past year, GME (Gamestop) and the stock market that accompanied it increased significantly, causing quite a few people to get rich quick. Elon Musk has also recently bought shares in Twitter, meaning he not only owns 10% of the company, but he can make decisions to change it.
This business has erupted lately since Covid-19 began, likely because everyone went online and found out these things more, first with cryptocurrency early last year, then following the rise of NFTs. The virtual world is slowly presenting more and more opportunities for some seemingly ‘easy’ money.
This article will help you to understand this ever-growing business and know the basics.
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What are they?
First off, you need to know what stocks and shareholding are. It’s likely you have heard about Wall Street in New York, which is the centre of investing and building stock. But there is much more to it than that.
A single unit of stock (shares) represents ownership of a fraction of a corporation. This entitles the owner of the stocks or shares to a proportion of the corporation’s assets and profits equal to how much stock they own. Owning 10% of the stock would mean 10% of the profits go to you.
Buying stocks from a company allows you to own a percentage of the company. For example, if a company only allows 1000 shares to be sold and you own 100 then you would technically own 10% of the company.
This then allows you to make decisions in a shareholder meeting on the company. You can then make passive income depending on how much the company earns. Usually people would sell these shares to someone else for a higher amount if the company ends up being worth a lot more.
If the company is worth more then the shares will also be worth more; much like if you had enough shares to “own” 3% of Apple in 1974. In today’s state of the value, you would theoretically have 18.9 billion dollars in 2017. You would have also had at least 53 million dollars when Apple’s stock closed at 29 dollars per share in 1980.
When shares give you passive money for shareholding, this is called dividends. Not all stocks give out dividends so it is up to you whether to buy one or not. A stock without dividends may work like a cryptocurrency which can fluctuate in price.
These people who hold shares are called shareholders.
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Shareholding refers to the ownership of the stock you have bought. A lot of shareholders will negotiate higher prices on their shares as they are a limited resource, but due to today’s economy, people will gladly buy something for almost double its initial price just to have it. This means by having business smarts and knowing you have something incredibly valuable you could make a huge profit from it.
Take a look at these real-life examples of shareholding.
Elon Musk recently bought 10% of Twitter’s shares which equivalate to about 2.89 billion dollars. This allows Musk, who has had a long-standing quarrel with Twitter, to now be on their board meetings and have a say in the vote towards what is best for the company.
Alec Guiness, who played Obi Wan Kenobi in Star Wars (1977), asked instead for 2% of the shares in the films he starred in instead of a normal salary. Inevitably, Star Wars ended up an absolutely huge success and made almost 750 million dollars. This meant Alec had made 95 million dollars so far from such a small share in the films. His co-stars were offered the same deal, but sadly turned it down which meant people like James Earl Jones, the voice of Darth Vader, walked away with only 7000 dollars.
What Are The Benefits and Drawbacks?
There are, as in many digital assets, pros and cons to be warned about. So don’t let the good outweigh the bad and invest wisely.
Stocks have a higher return rate than any other investment methods, however, they take longer.
- This means that from the passive income earned from owning a portion of the company, it may take a year to get the money back from what you paid for the initial shares. But, you will eventually go into a profitable situation.
Stocks may pay dividends to provide extra income or be used to buy more shares.
- This is a great situation to be in but not all stocks and shares give dividends. Those that do not will require a closer eye to the value in the event it begins to drop in price. This can result in a loss of all of your money whereas having dividends means you can earn that money back eventually as long as the company doesn’t lose all value.
Stock prices can rise and fall dramatically.
- Much like gambling, assume you are going to lose the money. So, don’t go overboard with how much you spend on stocks or you may end up biting more than you can chew. This is similar to cryptocurrency, and NFTs.
There isn’t a guaranteed return.
- This is a big drawback in the business. You shouldn’t relax once you buy a share because you might end up losing your money on it. It can be a stressful process to decide whether to sell the share before you lose everything or maybe it is going to go back up at the last moment and you lose out on a lot of money.
How Do I Get Involved?
There are many different trading platforms in the UK, and around the world via the internet. These trade sites do have a charging fee for trading, buying and selling. Shares are usually bought from the company or someone selling the shares, you can’t just outright buy them from the company like NFTs or cryptocurrency. Plus, these trading platforms must make some profit somehow.
It is simple to get involved; all you really need is money, an account and you are set.
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Shares, and stocks are a tough business to get into so make sure you are mentally and economically prepared. Hopefully the article above has helped you understand the ins-and-outs of this subject.
If you are in any need of assistance regarding stocks or any other subject then feel free to contact us here at Count today!