Equities can be a complex and confusing area to comprehend for a beginner. You get to hear things like the market is slowing crashing or stocks are widely being purchased and sold in the market. Again, terms like dividends and investments tend to confuse you, and understanding equities can really be tough, especially for a newcomer. However, even if you have been investing in them for some time, they still can be difficult to predict.
Kavan Choksi is a widely respected business expert and investment specialist well-versed in finance and entrepreneurship. According to him, there are some things about equities that you should know of before investing in them-
- They are assets- Equities are an asset class that includes common and preferred stock. They can also be called shares or stocks. You can buy them from the company themselves or an investment/brokerage firm as a purchaser.
- You get ownership in the company- When you purchase equities, you become a part-owner of that company. The company raises funds for its business operations and expansion by selling stocks, or they can use the money to buy other companies. When investors buy stock, the corporation gets the money it needs for expansion. This is why it sells stock to the public. Raising capital is essential for any business, and so when someone buys the stock of a company, it is positive for its growth and operations.
- Investors are the share-owners of that company- When you buy equities, you are an investor. As mentioned above, you become an owner in part of the business. You also get voting rights (common stocks) and can exercise your discretion on important matters of the company, like electing members of the Board or issuing the approval on mergers. If the company becomes successful, the shares will rise in value as more money flows into the company, resulting in more profits.
- Equities and dividends- Dividends are the cash you get from your owned stock. They are given to shareholders of both preferred and common stocks. They are generally paid at a fixed amount quarterly to the shareholder.
What should you watch out for?
When you are buying equities, you must be aware of their value in the market. Investments will go down, lose their value only if the company does not perform well in the market. The value of its stock also falls- this means people no longer want to buy its stock in the market anymore. After all, no one would like their investments to go worthless.
When investors are apprehensive of the company’s future prospects, they quickly sell off their shares. They do not wish to have shares that give them no value in the future.
According to Kavan Choksi, another reason for the value of investments in equities fall is when another investor tends to outbid you during a company’s initial public offering or IPO or a secondary offering for the equity share. This happens when other investors are ready to pay more over what you need or want, and you no longer hold the chance to purchase the share.