With everything from business deals to Brexit altering the shareholders’ income drastically, why should investors take the risk of investing in the equity market?
Gold was considered a store of wealth in many South-East Asian countries. The idea behind is that the value of gold increases over time and people can sell it when they needed money and earn profits. In other parts of the world and in urban areas of these countries, investment is slightly less glittery and space consuming.
Buying shares is a common way to invest for people who are looking towards long-term profits. But it has a risky nature.
A few days ago, FTSE 100 company Marks and Spencer signed a deal with Ocado to bag a place on Ocado’s website from 2020.
M&S paid £750 million for the deal, despite being in £1.8 billion debt,and shareholders were asked to fund £600 million required for the deal.
Whilst there have been mixed reactions from critics, investors have given an unequivocal thumbs down to this deal.
In another case, Ryan Air recently disappointed British investors as the airline declared it will take away the rights of British shareholders in case of a no deal Brexit.
Although stories like this definitely make it easier to understand why Indian farmers simply buy gold whenever they want to invest, buying shares is still one of the smartest ways to invest and understanding the market dynamics better.
So where should you start?
The Basics
A company has three ways it can raise money in order to function.It can either take a loan from the bank, or from some other party, or sell shares.
When a company takes a loan, it has to pay the borrowed amount after the scheduled time, alongwith the interest.
However, when a company sells shares, the shareholders hold part ownership in the company depending on the number of shares they brought.
They get to take part in the company’s decision-making process in this scenario. The amount shareholders earn depends on the profit the company
When the company is makingprofits, the value of shares also increases. So, the shareholders’ earnings and prices of shares go together.
While giving loans to companies is safer, investing in shares means there is no limit to how much money shareholders can earn.
Though shareholders can’t do much to decide the fate of a company, they can think about which companies could have the potential to make it big and invest there. Engaging stockbrokers and reading about new businesses is a good way to start.
Shareholders have the option to sell shares whenever they want, at par with market prices.
However, selling shares is the last resort and should be done after thorough consideration. The stock market is an unpredictable place and while there are certain ways to analyse whether or not a company will do well, there are no set rules that may be adopted.
Real-World Examples
While Marks and Spencer faced backlash from its investors, James Moore from the Independent said, “The deal is the best thing that M&S has done in a while.
It was in the midst of what I’d term a ‘managed decline’. This fixes a big gap in its portfolio and gives options. Hindsight is a wonderful thing when it comes to investment.”
In the case of Ryan Air, Emily Hardy from the financial advisor group, This is Money says, “Ongoing Brexit uncertainty has left many firms with little choice but to cover their backs. It should prove as a defense that helps protect the business and value for shareholders in the long run.”
An investor should also take advantage of the situation in the market while making any decisions.
“At times like this, it’s a good idea to invest little but often (once a month). This way more shares are purchased when share prices are low and fewer shares are purchased when prices are high,” says Myron Jobson from This is Money.
Advice
There are thousands of companies out there. Trust your instincts and follow the stock market to make the best decisions.
There is help available in the form of financial advisors and analysts, and even if you don’t want to make any investments at the moment, it is useful to be aware of options you may have one day.