Stock is one of the financial instruments sold in the stock market. It is a profitable investment option that has even outperformed most other investments over the last decade. In this article, you will learn all there is to know about stocks and how to buy and sell stocks in Africa.
Definition of stock?
A stock also called equity is a type of security sold in a stock market that allows a stockholder to own a fraction (share ) of a company including the assets and profits associated with the company the stock is bought from.
Now, do not confuse stock with bonds. Stock is different from bonds although both are securities, bond operates like a loan made by creditors(investors) to a company in return for periodic payments with interest paid for the principal.
Why are stocks sold?
Stocks are sold by public companies registered by the Security and Exchange commission with the aims of;
- Paying off debts owed by the company to its debtors
- To finance and publicize the launch of new products.
- To aid the expansion of a company into new markets or regions and
- To expand the existing facilities of a company or to build new and better ones
Why you should buy stocks?
As stated earlier, investing in stocks is one way of making good money either as a young one or for retirement purposes. The benefits of buying stocks include ;
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Stock provides a great potential for capital appreciation
The process of stocks works by buying at a low price and selling when the price is high. Buying stocks at a low price(low capital) provides a way of growing money over time when the stock price rises. With stocks getting positive returns is assured in the long haul.
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Opportunity to earn dividends
Buying stocks from a company usually comes with the benefit of earning dividends. Dividend rewards are fragments of a company’s profits paid to its investors as incentives for buying stocks from the company. You can choose to reinvest dividends earned into buying more of the company’s stocks and further maximize profits.
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Stocks allow investments diversification
One of the features of stocks that makes them beneficial is the ability of stocks to allow diversification by investors. This implies that stocks can not only be bought in one company, you can choose to buy from different companies and different sectors. This reduces the risk of loss over time and also exposure to several business companies.
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Stocks when compared with bonds grow faster and are less likely to lose value over time despite market fluctuations.
Stock investing is an efficient plan for the future because it works better than saving accounts also the idea of buying a portion of a company whether international or local promises to be worth the effort in the long haul.
Types of Stocks
There are two types of stocks- Common and Preferred Stocks and they are further divided into categories.
Common allows stockholders to vote at shareholder meetings and earn dividends.
With preferred stocks, owners don’t vote at shareholder meetings but have higher priority than common stockholders. They receive dividends and are even paid before common stockholders. In instances when a company goes bankrupt, preferred stockholders are usually paid before common stockholders.
Below are the stocks categories :
- Growth Stocks – Growth stocks are the primary kind of stock and earnings here grow faster than the market average. Dividends are not earned here, they are mostly bought with the goal of capital appreciation
- Income stocks – income stocks offer dividends, and they are earned consistently. Income stocks are known to generate and develop income, a reason it is mostly preferred by investors.
- Value Stocks – Value stocks could either be growth or income stocks. They are stocks that have a low price-to-earnings ratio(PE) and they are cheaper to buy, unlike stocks with high PEs. Many investors buy value stocks with the intent of being favoured when the stock market experiences a rebound and the stock prices are up again.
- Blue Chip Stocks – These are shares bought from large and renowned companies with a stable history of growth. Dividends are offered as well.
How to buy and sell stocks
To successfully buy and sell stocks, investors must understand how the process works.
The buy and sell of stocks begin after a company goes public through an IPO(initial public offering ) which allows stocks to become available for investors to buy and sell in a stock market. To buy these stocks investors will have to use a brokerage account which was earlier set up to purchase the stocks which will be listed by the company as bids or offers.
Investors can buy stocks either by using a direct stock plan ( buying directly from the company without enlisting the help of a broker), or a dividend reinvestment plan which allows investors to buy more shares of stock already owned and also to reinvest dividends earned or through the help of a service broker who will proceed to represent the investor in the process of buying and selling of stocks.
Another great way to buy stocks is through the use of a stock fund which is offered by investment companies and can be purchased directly or through a broker.
In simple terms, to efficiently buy and sell stocks an individual will have to research the types of stocks available, decide on how many stocks to buy, proceed to buy directly or through a broker, monitor the stocks bought and further build a stock portfolio.
Final Thoughts on How To Buy And Sell Stocks In Africa
The process of buying and sell of stocks often entails fees, also stocks investing just like other stock market investments surely has its risks and limitations. Still, stocks remain the most profitable of securities sold at the stock market but even here you will have to employ efficient decisions and monitor the process closely.