Why would i buy stocks?
Stock market, which is immensely potential to deliver spectacular return, some time remains out of bound for most of the beginners, for, their lack of knowledge and understanding the stock market and various market related terms wreck havoc on them.
So before we go deep in discussing various aspects of stock trading methods, strategies and psychological aspect, it is imperative that we clear up the basics first!
A stock is a part of a company and by buying stocks of any company; we become a part of the owners of the company. So essentially, buying stock means owning a company. Having said it, we can easily deduct that; we will buy the ownership of a company only if we are confident of its future prospect. As in our daily life, we do not buy the gadgets or stuffs, which we do not actually understand or use, or we do not buy stuffs, whose quality is uncertain, here in stock market, we should avoid buying the companies whose business model, method of interactions, working styles we either do not understand or we do not support wholeheartedly.
A stock market is a place, where the buying or selling of the ownership takes place; it is the place where supply meets the demand.
While buying a stock, since it is a commercial activity, so we are driven by the profit motive only. Now, to make a profit in stock market, we need to buy the stock or ownership of a company whose prospect is, according to our understanding, bright enough. So that the stocks we buy today may rise in days to come, so that when we sell those stocks, we can gain significantly.
At this moment, we need to understand why the stock price would rise and fall?
As we already asserted that buying stock is essentially buying the ownership of a company, we can now say, that if a company remains successful, it will make constant profit, so its valuation will increase over the time, now since stocks are essentially the part of ownership, so as the valuation of the company increases, naturally, the valuation of the stocks will also increase.
On the other hand, if a company is running a faulty business model or some kind of mal practice, then today or tomorrow, it is bound to make loss, as it makes losses, its valuation decreases, so does the stock price!
So now, we can easily conclude that we should invest only in those companies, whose business model is sound and business practice is ethical, and the management is capable of handling the business, otherwise we will not be able to be benefitted from stock market investing.
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