The stock market gives one the chance to have short- or long-term profits. However, not everyone is cut out for such investments. There may be several reasons for this. Firstly, the actual idea of owning part of a company may not be of interest to some.
Owning shares in a company also exposes one to the risks that the company faces. If the business is reported to have financial difficulties, legal problems or other issues, its stock is likely to be affected, fall and consequently, also pull down all investors in the company.
An individual who intends to invest in the stock market must realize that gains generally come after an extended period of time. In addition, even short-term results are not always guaranteed, as negative economic or company news can quickly wipe out any profits. This means that a shareholder must be patient in waiting for the investment to increase.
This patience extends to market timing in the case of short-term traders, who aim to move in and out of the market based on what they feel is the most opportune time to do so. The problem with this approach is the assumption that the market can be consistently predicted – a condition that most financial advisors believe would be virtually impossible.
Discipline and flexibility are two other traits needed by individuals who decide to invest in the stock market. Market stability is not always a given, and there will be periods when the market may be volatile. This happens particularly in the event of a major disaster such as the September 2001 terrorist attacks in the US, and the havoc caused by recent hurricanes Katrina and Rita, which forced the shutdown of major oil refineries in the Gulf of Mexico.
When these situations arise, it can be difficult to predict the direction of the stock market due to resulting fluctuations, making it necessary for shareholders to remain disciplined with investment strategy but flexible enough to adjust to the situation.
Investors should also put in some research before selecting any stock. Among the factors they need to know are the history of the company; the company’s parent, subsidiaries and other affiliates; earnings movement; management structure and expansion plans. These would give an individual a good idea of how stable a company is and help project the company’s direction and future.
Having an interest in a company through shares of stock thus poses both risks and rewards. However, the stock market may not be an ideal investment vehicle for individuals who don’t have patience, discipline, flexibility and enough diligence to conduct research.
Further information on owning shares can be found on sites such as Finance and Investment Information.
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