Buying shares is like buying a small piece of company’s cake. You can buy shares from the many stock markets around the world. For the most part, people buy shares in companies they believe have good future prospects in the hope that those shares go up in value.
Investors vs speculators
There are two types of people who buy shares, investors and speculators. I am an investor. Investors do not try to predict the ups and downs of the market but accept the bumps, knowing the value should increase over time. They also buy then hold shares to receive dividend payments that many listed companies pay to shareholders.
A speculator approaches the financial markets with a short-term view, and often takes on massive risk in the hope of making big gains.
I grew up with a father who loved the stock market. Over time, what I’ve come to understand is that while I’m an investor, my dad is (for the most part) a speculator. He loves the thrill of the day-to-day highs and lows.
Over the years my father has invested in all sorts of weird and wonderful companies based on a gut instinct. At heart, my dad is quite the gambler.
Supply and demand
Share prices go up and down due to supply and demand. If there is high demand for a stock, the value goes up. If there is low demand, the value goes down.
The share market is essentially a very emotional animal that is subject to world events, company financial results, the media and the opinion of investors. Demand is a reflection of what investors feel a company is worth.
Should you buy shares?
The share market can fluctuate a lot, but over the long term, the average return is approximately 9 percent. If you have a good tolerance for risk, and don’t think you’ll freak out by the day-to-day price movements of your shares, you might be an investor like me.
To find out how you can buy shares, check out my five-step how to guide.
Share markets around the world
Many countries around the world have share markets. Australia has the Australian Securities Exchange (ASX).
Each country has a number of indices used to measure the overall performance of their share market.
Australia’s benchmark index is the S&P/ASX200. The S&P/ASX 200 contains the top 200 ASX listed companies by way of market capitalisation (share price x number of shares available in the company).The S&P/ASX200 accounts for 70 percent of the Australian share market.
When this index was created in 2000, the index value was 3133.3. Today it is worth over 6000, which shows the rise in the value of the Australian share market over time.
There are many other such indices that are used to gauge the health of their respective share markets – including the Nikkei (Japan), Hang Seng (Hong Kong), Dow Jones (USA), DAX (Germany) and the FTSE (UK) pronounced “Footsie”.
If you don’t want to buy shares in an individual company, you can buy into an Exchange Traded Fund that tracks one of these indices.
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