Warren Buffett, reportedly worth over 100 billion, is one of the richest men in the world, not by inheritance or by innovating technology, he made his fortune primarily through value investing in stocks.
Warren thoroughly researched companies and bought undervalued stocks of companies with strong fundamentals, holding them long-term. Through his investment company, Berkshire Hathaway, Buffett acquired significant stakes in a diverse range of businesses, including Coca-Cola, American Express, and Apple, generating substantial returns over decades. His disciplined, long-term investment strategy and ability to identify undervalued opportunities have been key to his immense wealth and success.
What is A Stock?
A stock in the stock market represents a share of ownership in a company. When you buy a stock, you are purchasing a piece of that company, known as a share. Each share entitles you to a proportion of the company’s assets and earnings, depending on the number of shares you own.
By owning stocks, investors participate in the growth and profits of companies, making it a fundamental way to build wealth over time.
What is A Stock Market?
The stock market is simply a place where anyone can buy and sell shares in businesses who have opted to sell their shares publicly.
Most big companies you can think of are listed on the stock market, Apple, Microsoft, Netflix etc. This means you can pay to own a very tiny fraction of those businesses yourself. The reason you want to own a tiny piece of a company is simply to make money. The idea when you buy shares is because you believe that at some point in the future, the business will be worth more. This means your share will be worth more and then you can sell them at a much higher price than you initially paid.
The difference between the amount you bought them for and the amount you sold them for is your profit. So clearly the goal s to buy when the price is low, and sell when the price is high.
How Is The Price Per Share Calculated?
The simplest answer to this question is supply and demand. The only way you can buy a stock at a certain price, is when someone is willing to sell it at a certain price.
If many people want to buy a share (high demand), its price will go up. If many people want to sell a share (high supply), its price will go down.
The supply and demand of shares in the stock market are influenced by several key factors:
Company Performance: Positive earnings and successful products increase demand (e.g., Apple’s new iPhone), while losses and issues increase supply (e.g., Tesla vehicle recalls).
Economic Indicators: Strong economic conditions boost demand, while recessions reduce it (e.g., 2008 financial crisis).
Industry Trends: Favorable trends increase demand (e.g., renewable energy), while adverse trends reduce it (e.g., decline in print media).
Market Sentiment: Optimistic (bullish) sentiment increases demand, while pessimistic (bearish) sentiment increases supply (e.g., fears of a recession).
Interest Rates: Low rates increase demand by making borrowing cheaper, while high rates reduce it (e.g., post-2008 crisis low rates boosted the market).
Political Events: Stability boosts demand, while turmoil decreases it (e.g., Brexit caused uncertainty).
Global Events: Positive events like trade agreements increase demand, while negative events like pandemics increase supply (e.g., COVID-19 pandemic caused a sell-off).
Understanding these factors helps investors make informed decisions.
Research and Knowledge:
-Understand the companies you invest in, including their business models, financial health, and market position.
-Stay informed about market trends, economic indicators, and industry developments.
Long-Term Perspective:
-Adopt a long-term investment strategy rather than trying to time the market.
-Focus on the underlying value of companies and hold investments through market fluctuations.
Diversification:
-Avoid individual stocks if you are a beginner. Spread investments across different sectors and asset classes to mitigate risk.
-Avoid putting all your money into a single stock or industry.
Risk Management – Only Invest What You Can Afford To Lose:
-Assess your risk tolerance and invest accordingly.
-Use stop-loss orders to limit potential losses.
Financial Health of Companies:
-Analyze key financial metrics such as revenue growth, profit margins, debt levels, and cash flow.
-Look for companies with strong balance sheets and consistent earnings growth.
Reinvesting Dividends:
By adhering to these principles, investors can improve their chances of making money in the stock market while managing risks effectively.
For beginners with limited funds, it’s important to focus on stocks that offer good growth potential, stability, and reasonable prices. Here are some categories and examples of stocks suitable for new investors with little money:
Starting with a mix of these stocks and strategies can help beginners build a solid, diversified portfolio while managing risk and taking advantage of growth opportunities.