Lesson 1: Why should someone invest in stocks?
The analysis of stocks should surely begin with the definition. Stocks represent ownership of interest in a company. If I own 10 shares of a company which has issued 500 shares in total then I own 2% of the company. That effectively means that I am entitled to 2% of the value of the company and 2% of the profit that is generated after tax.
Who should buy common stock?
Common stock (aka shares, aka equity) is an investment. Anyone with savings (Income>Expenditure) can invest in stocks with the hopes of increasing personal wealth. However, just because someone has some extra money does not mean that he should invest all of it in stocks. We will cover more of it in our “Personal Finance” section which I plan to launch after some while.
What are some alternatives to investing in stock?
Instead of stocks an investor in Bangladesh (and outside) can invest in fixed income instruments like bank deposits, government savings certificates, real estate and many other conventional and non-conventional (e.g. antiques and arts) assets. Typically, most people would hold a diversified portfolio of assets and the mix of these assets would depend on a number of factors including age, financial dependents, need for recurring income etc.
Doing our own homework
In Bangladesh most of the people do not spend time doing their own analysis or homework before investing in a stock. Therefore, they are typically speculating and going on a wild goose chase where the advanced insiders can rip them off. This stock investing series for beginners has been launched to help people avoid at least the most common pitfalls. Who knows, among my readers I could have the next Peter Lynch or Joel Greenblatt (using Warren Buffet would have been too cliché) in the making.
Skills needed to become a good investor
A good investor will actually need a large number of skills. Some basic mathematics (addition, subtraction, multiplication and division), a bit of finance, knowledge of the common financial statements, understanding of the economy will be necessary. None of these are stuff that a common person cannot learn and we will surely go over them.
On top of that there are some extra skill sets that would come in very handy like a strong network, good communication skills, knowledge of Microsoft Excel, analysis of body gestures etc. I am making it sound quite mysterious but once we are through the next lessons things will slowly come into place.
Investing is fun, especially when done the right way. It is like playing a computer game (think World of Warcraft or Counterstrike) and can get quite addictive. I hope these free lessons will be useful and full of fun.