Stock market investing explained by Investingport

Stock investing unlike forex, cryptocurrency involves investing in businesses and not just trading. When you invest in a stock, you are investing in a business. If you are to invest in a business introduced by a friend to you, you will do your due diligence, before putting in money, right? Likewise, stock investing requires due diligence and strategies.

It, however, good to note that funds invested into stocks, shouldn’t be money you will need in the short run, like one to six months. Funds that will be needed in the short run, it isn’t advisable to invest them in stocks, rather they should be invested in money market instruments, like treasury bills, fixed deposits.

Funds invested in stocks earn returns in two ways;

DIVIDENDS: Dividends are funds distributed to shareholders from the profit a company makes. In most cases, these dividends are paid twice a year or quarterly. Not all company pays dividends, though, they prefer to reinvest the profits into the business rather than paying dividends, while some companies pay dividends. As an investor in the stock market, if your goal is to make returns through dividends, then when you buy a stock, you should go for dividend-paying stocks.

CAPITAL APPRECIATION: Capital appreciation is the increase in the value of stock bought. Let say you buy Zenith bank shares for N20 per share and in two weeks time, it is being sold for N25 per share, with this, for every unit of shares you bought it has appreciated by N5. When you sell at N25 per share you get your returns. If you are targeting to earn through capital appreciation, go for stocks that have the ability to grow above the market. These types of stocks are called growth stocks. Fortunately, some growth stocks are dividends paying stocks.

Don’t just pick any stock, have a plan even before buying. Start by choosing an industry to invest in. In the stock market, there are various industry to invest in, such as; banking industry, insurance, telecom, healthcare, cement, agriculture, consumer goods(FMCG), aviation, transport, etc 

When you decide the industry(ies) then go for a particular stock in that particular industry(ies) that matches your plan. You can invest in two or more industries, that is diversification.

After selecting some stocks from the various industries that match your goals, decide the period of time you would like to hold the stock before that have a targeted exit price, so as to meet your expected returns.

BEAR MARKET: a period in the stock market when prices of stocks keep declining, during this period is one of the best times to buy as an increase, later on, will lead to good gains. However, always do due diligence to know what factor is behind the bearish run. For example, during the lockdown in 2020, the market was bearish as a result of the virus. The bearish run could be attributed to the virus, buying then would be with the hope that when the lockdown is eased the price will go up. In summary, do due diligence to know why there is a constant decline in the price of a stock you are targeting, before buying.

BULL MARKET: a period in the stock market when prices of stocks keep appreciating, this period those who buy during the bear market are the profit takers. The forces of demand and supply also affect the prices of stocks. When investors willing to buy a particular stock is higher than shareholders willing to sell their shares, the price will increase, then when shareholders willing to sell their shares are more than investors willing to buy, the price declines.

You could also seek advice from investment analysts to give you tips on stocks that match your investment goal. You should ensure you have a target and goal before investing in the stock market and not just because every other person is investing.