Curious About Shares? Seeking Guidance on Getting Started with Trading

Hi All,

I am an HR professional in a small IT firm. I am very much interested in shares these days, but I don't know anything about it. It would be very helpful if anybody could guide me and explain what shares are all about and how to proceed with them. I am eagerly waiting to learn about trading. Please do help me.

Regards,
RamyaVinoth

Share capital is the fund raised by a company through the issuance of common or preferential shares to individuals/institutional investors for the growth and expansion-related aspects of the company. It is also known as equity financing through which the shareholders of the issued capital receive rights of ownership in the concerned company by buying shares of the same. Buyers of the share capital become owners of the company in accordance with their stake in the same and hence possess a certain degree of control over its operation.

The amount of share capital a company possesses is a variable. As a company issues more and more shares to the public in lieu of funds, the amount of share capital increases.

a) Equity Share

It gives ownership rights to the holders of the stock, and hence, the shareholders are entitled to the earnings of the company according to their stake. Holders also get dividends on those stocks as and when given by the company. Liquidity of common stocks is very high and can be bought and sold at any time during market hours.

b) Preferred Share

These stocks also give ownership rights to their holders. Its holders enjoy the privilege of receiving dividends from the company in preference to any other common shareholders.

Preferred stocks have less liquidity than common stocks.

The shareholder can expect some return in the form of dividends and appreciation in the value of shares.

Regards,

Deepak Singh

Email: dks.ica@gmail.com

Hi Ramya,

Mr. Deepak's response might have given you a basic understanding of shares. For beginners like you, share trading may be dangerous, and worldwide, it's proven that those who invest for the long term in shares can gain.

It is because of this chase for hot money that people have been trading, and many of them have gotten burned fingers. Let's look at the following example and hear your response.

You, me, Mr. Deepak, and two more friends have started a stationery shop in a decent locality where schools, colleges, and offices are more prevalent (with Rs. 25k, 30k, 35k, 40k, 50k each, and the shop named as MATRIX opened in a glittering ceremony). Now, say after 3 months, if one of our partners (shareholders) comes and asks for Rs. 50k, what will be your response? I hope my guess is correct; there are three options: One - Ask him politely to wait as the business has just started and has yet to recover what we have invested; Two - One of us buys his stake if any one of us is that rich!; Three - Sell some stationery, even at a loss, to recover and pay his amount less the losses incurred.

If Mr. Deepak comes and asks after 3 years for Rs. 10k, we all may be very glad to give what he has demanded/requested.

If I come and ask after 5 years for Rs. 15k, we all may be very glad to give what I have demanded/requested.

If you come and ask after 10 years for Rs. 50k, we all may be very glad to give what you have demanded/requested, and you might have also received some decent income as profits during these 10 years too.

If many of us in the world understand this basic principle in stock markets like Warren Buffet, we might become the richest in the world. Anybody who does not buy into this basic thought process can show one stock trader who is the richest in the world.