Many people still think stocks are devils that should be avoided better so as not to lose everything. This old prejudice is reinforced by Hollywood films that portray the stock market as a place of unscrupulous traders in expensive suits and as speculative. Although there is also a core of these clichés, if you are concerned with it, you will discover an attractive one in stocksand comparatively safe form of old-age provision.
What are stocks? – Ownership of companies
Every company has owners – be it the small baker next door or the flower shop around the corner. In the case of large companies, the so-called stock corporations, the owners are divided into many small shares, the so-called shares. If you buy a stock, you become a co-owner of this company. You probably use products from these companies every day: your iPhone from Apple, yourInternet from Vodafone, your adidas sneakers, your car from VW, or your order from Amazon. Instead of just spending money, you can also share in their success by buying stocks.
Stocks – accessible to all
The participation concept is not only reserved for wealthy private investors. You can acquire shares in a company with just a few euros and become a co-owner. That still excites me personally. As a shareholder, you have essentially the same rights as someone entering the bakery opposite: You have a voting right in important decisions and canParticipate in the profits.
Your rights as a shareholder– Co-Teems and Dividends
The Annual General Meeting of a joint stock company takes place once a year. For snacks and drinks, shareholders vote on key decisions. Even if the board of directors is allowed to decide a lot independently, large decisions must be coordinated with the shareholders. How much influence you have depends on the number of your shares. Some shares, so-called preferred stocks, grantNo voting rights, but often pay a higher dividend for it.
Share Profits – Dividends
Shareholders are generally entitled to profit sharing by dividends. Some companies distribute part of their profits every year, others reinvest them in growth or innovation. Example: Amazon and Alphabet (Google) have not yet paid dividends, but are putting everything into the further development. The amount of the dividend depends on the profit and the number of your sharesoff
Price gains – more than dividends
In addition to dividends, you can also earn money through price gains. If you buy a stock for 100 euros and it rises to 150 euros, you have made a profit of 50 euros. Together with dividends, this results in the so-called share return: Price gain plus dividends.
Stock market stocks – the marketplace for financial products
Many shares are traded on the stock exchange, which means that the companies are listed on the stock exchange. This allows you to become a co-owner with little money. You decide how much you want to invest and you can sell your shares again at any time – quickly and easily. The stock market is like a huge marketplace, only for financial products: stocks, bonds, commodities such as oil or coffee.It is standardized, regulated and very efficient.
How do supply and demand determine the prices?
The price of a stock depends on the ratio of supply and demand. If there are more buyers as sellers, the price increases. If there are more sellers than buyers, he falls. This is comparable to raw materials such as wood: With high demand and a tight supply, prices rise, and they decrease if oversupply.
Price fluctuations – the ups and downs on the stock exchange
Millions of stocks like Daimler are traded on the stock exchange every day. The courses are constantly changing, sometimes in seconds. These fluctuations are influenced by the events, expectations and feelings of the investors. Isaac Newton once said: “I can calculate the movements of the celestial bodies exactly, but not where the mass of stock market prices are going.”
Expectations and Coincidence – The driving forces
The courses are strongly determined by expectations. If many believe Tesla will be providing excellent figures next week, the price will rise. If the numbers are disappointed, investors sell quickly, and the price falls. The stock market is about the future: expectations, events, fear, high spirits – everything affects the prices in the short term.
Risks and opportunities in equity investment
Risks are part of investing in stocks. A high risk can also mean opportunities. The market risk, i.e. the general fluctuations in the stock market, has become clear, for example, by events such as the Corona crisis: in 2020, the market fell by up to 30%, but recovered. In the long term, the average return is positive and the risk is worth it.
Entrepreneurial Risks – The Game with the Future
Those who are a shareholder also bear entrepreneurial risks. Companies grow fast, sometimes slowly, have crises and challenges. This uncertainty is reflected in the value of the shares. You will be rewarded for taking this risk by dividends or long-term growth. But not every investment is successful; Sometimes companies go bankrupt too, and you lose yoursinvested capital.
Measure Risk – Volatility as a Metric
The fluctuation intensity of stocks can be measured, for example with volatility. This shows in percentage how much a course deviates from the average. The higher the volatility, the more the prices fluctuate – and the higher the risk.
Good and bad risks– Opportunities vs. dangers
Not all risks are worth it. Market risk is an example of a fundamental risk that is usually rewarded with returns in the long term. However, there are also risks that do not offer opportunities, only losses. Therefore, it is important to carefully weigh risks: You must open opportunities to be worthwhile.
The risk is worth it
Overall, the market risk of equities is a calculable risk that usually pays off in the long term. It is part of the game to generate returns. Anyone who invests cleverly can build up their assets with shares – despite all the fluctuations and uncertainties.
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