2.2 How do I benefit by Holding a Share?

BENEFITS OF HOLDING SHARES

I benefit by Holding a Share?

Why does anyone buy a share? If you look at the long term history of stock markets over long time horizons, stocks have provided consistent returns. For example, stocks in general have been solid investments. That is, as the economy has grown, so too have corporate earnings, and so stock prices are linked to the performance of the company in the long run. There is, however, no guarantee that the share value will appreciate or that there will be dividends. In a particular period there may be appreciation and or dividend and in another there may be one of them or none at all.

Most investors have a simple goal and that is to sell the share at a higher price than which they purchased it. To be able to do that requires a good understanding of stock markets and that is what you are gaining now. It must be noted that there are no guarantees that the returns will be positive and the quantum (amount) of return will also vary. It can be seen therefore that equity owners invest at their own risk and companies that raise money by this route are expected to keep investors informed about the risks and business environment in which they are operating.

Look at the long-term growth chart of stock market prices. In the longer time horizon this graph is more consistent. In the long term, stocks have continuously given high returns. Though there are some temporary falls as shown in the graph, even in the recent period there was an exponential growth in stock prices. So naturally it is bound to go upward in its natural direction in the long run. That is why stocks are one of the best and comparatively safe long-term investment instruments.

If we look at a short-term time span the price movements of stocks are very volatile. This means many ups and downs even within a day. It indicates that prices fluctuate more drastically over a short term depending on demand and supply of stocks and market sentiments. We shall discuss more about it later.

Short-term investors like day traders and speculators are more interested in these short-term fluctuations and they try to encash on this movement of the market. However, it’s very risky. And all your earnings can be washed off in a short span of time. So be careful when it comes to speculation and intraday trading.