How markets and investors value stock - Investment Essay Example
Stock is a security that signifies ownership in a company or asset and represents claim from investors or the owner - How markets and investors value stock introduction. There are two main types of stock that markets and investors are interested in: common and preferred. Common stock usually entitles the owner and some investors to vote on decisions and receive dividends. Preferred stock generally does not offer decision making privileges, but has a higher return on assets and earnings to involved parties than the common shares. Ownership of stock is determined by the number of shares an investor owns relative to the number of outstanding shares. In assessing investments such as stock, investors consider the stock’s valuation, strategy, plans for diversification and opportunity for all risk. Stocks are evaluated in many ways by investors, and most of the common measuring resources are easily available online or in print. Investors actively seek stocks of companies that they believe will be very financially successful and in return gain value.
Many investors only pay attention to current day assets or earnings and don’t place any value on future growth. Other investors base strategies completely around the estimation of future growth and cash flows in stock and potential successful companies or new ideas. When it comes to stocks. The more the market values that stock the more that stock will be worth. According to “Stocks” (2013), “Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called equities” (para. 2). The market decides on the worth of a stock through supply and demand. The market decides to allocate resources by the adjustment of supply and demand. When either of these shift it can determine the more a stock will be worth in a market or the less a stock will be worth in a particular market.
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There are several different reasons why investors buy stock. These reasons include but are not limited to capital appreciation, dividend payments and buying shares will give an investor a voice in that particular company (“Stocks”, 2013). Capital appreciation occurs when a certain stock risers in price. Dividend payments comes when the company distributes some of its earnings to a stockholder (“Stocks”, 2013). The market determines the value of a stock and important when buying or selling stock There are two parts to a successful investment: picking the right company and buying at the right price.
Selecting stock is much like evaluating any business or company that a person might consider investing in. Investors and Markets use various measures to determine stocks stability. The main use of these measures is to predict future market prices, or more generally, potential market prices, and thus to profit from price fluctuations. The key is to take each approach into account while formulating. The key is to take each approach into account while formulating the risk of investing.
Stocks. (2013). Retrieved from http://investor.gov/investing-basics/investment-products/stocks