Before we get started
Trading in securities always involves a risk. Historical returns are no guarantee of future returns.
An investment in securities / funds can both increase and decrease in value and it is not certain that you will get back the invested capital.
Nothing that is read here should be seen as advice, I am just here to inspire you and to help you create a better personal finance.
What is the stock market?
The stock exchange is often described as a unit – it goes up or down depending on the economy, but what is meant is changes in the value of the companies traded on the stock exchange.
This in turn is governed by expectations of the specific company combined with expectations of the economy as a whole – that is why the stock market is affected by fluctuations in the global economy.
Stock exchanges exist so that shareholders can sell their shares at the same time as new owners have the opportunity to buy shares.
For the companies that are listed, an introduction on the stock exchange means that their shares will be available for sale to a broad group of investors.
In this way, companies receive money to continue to develop their idea and products, something that in the long run is important for the whole society.
The stock exchange functions as a market for shares, mutual funds and other securities
The shares sold on the stock exchange are generally not new shares, but the stock exchange can be compared to a secondary market for shares and funds where sellers and buyers must meet in price and number.
As a buyer, you define how many shares you want to buy and what price you are willing to pay per share, and as a seller, you define how many shares you want to sell and what you want paid.
The stock exchange system then automatically goes through all buy and sell orders that are on the market and when a buy and sell price meets, a close is made and the shares change owners.
This is what determines the price of a share – the more buyers are willing to pay, the higher the price.
In other words, it is supply and demand that determine what a share, or other asset traded on the stock exchange, is worth.
Invest in stocks
When you buy shares, it means that you become a partner in a limited company and it is all shareholders who own the company together.
The reason why a company wants to sell its shares and thus get more owners into the company is often that the shares are a source of financing.
The company only receives money on the stock exchange listing – when the shares are sold for the first time.
The stock exchange trading with used shares thus generally does not affect companies more than that the stock market price in the long run can affect the company valuation and thus the opportunity to borrow money, sell shares more expensive / cheaper, etc.
For you as an investor and shareholder, co-ownership means that you have the right to take part in the company’s profit and future value increase. You can also invest the company’s money in stocks.
To be able to invest in shares and other securities with your company, you need an LEI code. Here you can order an LEI code for your company.
What is a stock?
A stock/share is an ownership interest in a limited liability company. This means that you are a partner in a company if you own one or more shares in the company.
Become a shareholder and take part in future profits
When you as an investor buy a share, you thus become a partner in the company, which gives you the right to take part in the profit created in the company.
This can be done in two different ways – partly by selling the share at a higher price than you bought them for, partly by taking part in the company’s dividend.
As the company grows and makes a profit, each share becomes worth more money.
At the same time, a company that is doing well can decide to distribute parts of its profits to the shareholders.
In the long term, the company’s growth and the share price usually go hand in hand, but in the short term the price can be affected by many other factors, such as the economy in the world as a whole.
Always do your own analysis before buying shares
You should never invest without careful planning and research into what it pays to invest in.
You should instead start by learning the basics of securities trading. Securities include i.a. equities, mutual funds and bonds.
Although the art of investing is basically very simple, that is, you should buy when it is cheap and sell when it is expensive, it is a must that you learn to understand the price fluctuations on the stock exchange.
This is mainly about two things:
1 Fundamental information about a company – Information about how much money the company makes, how much debt it has, press releases about new collaborations, expansion plans, etc.
Most people can do a fundamental analysis of a listed company and here it is definitely worth sharpening their knowledge if you want to become a successful investor.
2. Market psychology – It is this part that is virtually impossible to predict and without anything fundamental in a company having changed, the price can increase and fall both 10, 20 and 30% because the people who shop think it is reasonable.
The optimism or pessimism of the masses can almost never be predicted and there are many thousands of factors that influence its direction.
How to make money on stocks?
There are two primary ways you can make money on stocks. The first option is to sell your shares for a higher price than what you bought them for.
The second option is a dividend. This means that you can take part of the company’s profit which is paid out to the shareholders.
1. Sell the shares for a higher price than what you bought them for
Another way to get a return on a stock investment is to sell the stock at a higher price than you bought it for.
This requires a thorough analysis of both the companies and the market as a whole.
Here the concept of “index” is good to know. The index summarizes the development in most different shares and can therefore function as a comparative figure. There are many different indexes you can use.
The most common index in America is the so-called S&P 500, where the value of all shares listed on the American Stock Exchange is weighed together.
This index therefore provides a good overall picture of developments on the stock market as a whole. Similar indexes exist for all other stock exchanges.
But an index can also weigh up how the share price in a certain industry has changed over time – if you want to invest money in a company in the clothing industry, the index development for that industry can provide important information while you can see if the company you are interested in has historically been over or below index.
1. Share dividend
One way to get a return on a share investment in the long term is through dividends where part of the profit is distributed among all shareholders.
It is thus the number of shares you own that determines how large a part of a possible dividend you are entitled to.
How much is distributed in relation to the share price is called a direct return – the higher the direct return a company has, the more dividend you get per share.
Not all companies offer dividends to their shareholders. It is usually the larger, more mature, companies that have high and stable profits that distribute money.
Smaller companies rarely have the opportunity for dividends but instead need to invest their profits in the development of the company.
Keep in mind that in the event of a dividend, money is transferred from the company to the shareholders, which means that there will be less left in the company.
You can vote for or against a possible dividend
Decisions on dividends are made at the Annual General Meeting and you as the owner always have the right to participate in this. The general meeting usually takes place once a year.
The more shares you own, the more votes you have at the Annual General Meeting and the greater the opportunity to influence the company’s future.
The Annual General Meeting is of course voluntary for shareholders, but if you have invested in companies you are interested in, it can be a good opportunity to both receive information and at the same time have an opportunity to influence the company’s future direction.
What are key figures and which ones should you know?
Other important concepts to know in order to make a relevant analysis are P / E ratios and P / S ratios. P / E is an abbreviation for “price / earnings” and is one of the most important key figures to be able to assess what price a share is worth.
The P / E ratio shows price per share in relation to the company’s earnings per share and can therefore not be calculated if the company makes a loss.
Earnings per share are calculated on the total profit divided by the total number of shares.
When you try to decide whether to buy a share at the current price, the P / E ratio can be useful as it shows whether the market (share buyers) values the company high or low.
The P / S ratio, which stands for “price / sales”, instead shows the share price in relation to the company’s sales, or sales.
This figure, just like the P / E ratio, gives an indication of how the market values the company.
Unlike P / E, P / S can also be calculated in companies that make a loss, which can be quite common for smaller companies.
The P / E and P / S figures are good indications, but it is not always obvious that a company that is already highly valued by the market is a good investment, a low-valued company that you believe has good future prospects can generate significantly greater returns over time.
Invest in several things at once
The biggest mistake that many new investors make is that they invest all their money in one and the same security.
You can of course be lucky and earn large sums of money by investing in one and the same security, but the risk of a negative, unforeseen event in the company is just as great.
This investment method should therefore be equated with high risk gambling because there is a risk of losing much of your capital.
A good example of a major loss is Volkswagen’s diesel scandal in 2015. At that time, the share price fell by tens of percent after Volkswagen’s emission fraud was discovered.
Had they had a large investment in Volkswagen, they would have lost large parts of their capital here, despite the share looking very promising until the same day as the scandal was discovered.
Only invest money that you can afford to lose
You should never invest money that you can not afford to lose. No matter how promising an investment may seem in the beginning, something can always happen that in the worst case can lead to the loss of the entire investment.
A rough example is that an earthquake that destroys a large factory can prove to be a fatal event for a company.
Although the company’s insurance company will hopefully cover the damage, it can take years before production can continue, and a company with less resources may not last as long without income – In the end, it can lead to stock crashes and your investment disappearing.
Although this is roughly simplified, similar things happen again and again.
Therefore, it is very important that you keep the risk factor in mind when you start investing your money.
Although there are many successful investors who have become multimillionaires on the stock market, there are significantly more people who have lost their money instead.
In addition to diversifying (spreading) your investments, it is therefore crucial that you do your research and that you do it carefully.
How to start investing?
To begin with, you must of course choose the type of investment you are interested in. There are many ways to invest your money.
These usually include:
- Rental apartments
- Stock and fund trading over the marketplace (stock exchange)
By far the most common type of investment among ordinary private individuals is stock exchange trading.
This means that you trade in shares, funds and bonds over a marketplace.
The difference between stocks and mutual funds is that by investing in stocks you often get a chance to make a little more money, but remember that this also increases the risk.
Funds, on the other hand, are often considered a little safer, especially for beginners.
This is because the risk is then automatically spread over a large number of companies.
Here it is important that everyone makes their own balance. Higher potential returns almost always mean higher risk, while lower and more stable returns generally also mean lower risk.
Always make risk assessments before you choose to invest your money and if you are aiming to take high risk, make sure that the capital that is being risked is capital that you can afford to lose.
Stockbroking services and try-out platforms
Once you have decided how and in what you want to invest, it is time to choose a platform that is suitable for the purpose.
Provided that you want to focus on shares and funds, you then, for example, open an account with a bank or stockbroker.
Some online stockbroking services give you the opportunity to try investing without risking your own money.
This is generally done by being able to invest with the help of virtual play money to learn how the market works.
A perfect way for those who are new to practice, or to try investing in their own analyzes without risking their equity.
This gives the opportunity for those who want to learn to invest to start by learning from their own investment mistakes.
Trying to invest without risk is something I recommend, especially to those who do not really dare to get started or to those who want to build up capital before you start investing for real. I personally did not do this but it is always good to consider.
If the exercise shows that you had lost on your investment, then you can also try to figure out what went wrong.
If it turns out that your pretend investment is profitable, you can try to find out if something has happened that may have led to the price increase. The end result, however, is experience without risk.
When you buy and sell securities, you pay a commission, which is a fee to the broker so that they can make money from providing the trade.
You do not have to think about brokerage when you shop, but it is calculated automatically by the broker at the end of the day.
For those of you who trade with small amounts, this is an important fee to keep in mind.
Some stockbroking services like Robinhood and Webull provide different brokerage classes and the smallest brokerage class is completely free of fees until you reach a certain amount of capital.
Different strategies for different types of investments
If you invest in shares, there are several different strategies for what type of shares you should choose, and how much should be in each.
The smart, long-term investor should choose somewhere between 5-10 established quality companies in order to grow their money stably in the long run.
The impatient, often losing but sometimes winning investor invests in high volatility stocks in hopes of making big money fast.
For the new investor, I therefore recommend investments in large, well-established companies in industries that will never disappear.
For example. food, clothing, beverages and means of transport. In this way, you as a new investor can minimize market risk and hopefully make your money grow stably from year to year.
I personally have a few shares in real estate companys that I know for sure have had a steady growth each year. which equals to a safe long term investment.
Others buy and sell shares daily, hoping to make money from changes in the value of the shares over a shorter period of time.
For example, such an investor could have bought Nintendo shares just before the coveted mobile game Pokémon GO was launched, which increased Nintendo’s market value by tens of percent, and sold the shares as stock prices slowed.
There is another type of stock that some choose to invest in: These are stocks that are worth very little and the motivation for this is that stocks that are worth very little undergo major percentage price changes.
A share worth one dollar is affected significantly more as its price increases by half a dollar, than a share worth a thousand dollars increases by the same amount.
Of course, this type of investment is extremely risky if you do not know the market very well, as prices can also fall just as drastically.
In addition, small companies run a significantly greater risk of going bankrupt than large, global companies, as small companies are significantly more affected by small changes.
Here it is important to do proper research and keep track of course prices during all open hours in the market.
Have a clear plan
It pays to have a clear plan on how you want to invest your money and it is absolutely crucial that you stick to this plan, even if the value of the shares rises or falls.
For beginners and people who do not want to take such great risks, I recommend that you diversify your investments to minimize the risk.
Of course, there are many who, regardless of how much they can find out through various sources, want professional help with their investment, and then it may be worth turning to a financial adviser.
It is important here that in that case you have a fairly robust capital for it to be perceived as profitable.
Most banks have some kind of opportunity to talk to a financial adviser, and of course there are many other ways to get in touch with such a person, for example via online services.
Get started today with investing money – but do it right from the start so you avoid headaches later on!
Then you have to find out what the purpose is: Are you going to save money in the long run or do you have a goal with your investment?
The clearer plan you have for saving, the greater the chance that you will succeed.
Always remember that the market swings fast and a stock can always go up as much as it went down yesterday and vice versa.
common questions and answers
what should i invest in?
There are many different ways to invest your money. These are some of the most common:
- Shares – You can invest in individual companies by buying shares. Then you make money if it goes well for the company.
- Funds – For example, an equity fund. Then you invest in many companies’ shares at the same time.
- Real Estate – You can invest in real estate. Either by buying a house or apartment, or through various types of services that finance real estate projects. There are also real estate stocks to invest in.
- Loans – You can invest in loans and make money on interest.
- Gold – You can invest in gold, or other precious metals. Either by buying physical assets or by securities. (This protects your money against inflation).
- Raw materials – In addition to gold, you can invest in many other raw materials, from oil to wheat and copper.
- Cryptocurrencies – You can invest in cryptocurrencies such as Bitcoin or other similar digital currencies.
These are some of the most common ways that are simple and proven.
The absolute easiest thing is probably to have long-term fund savings, but for you who want more control, for example, shares may be interesting.
how do i invest money?
This is how you invest your money:
- Choose what you want to invest in (for example stocks, mutual funds or real estate)
- Think about how much time you have (for example, a month, a year or 20 years?)
- Invest your money in that investment. Many common investments such as in shares or funds are made through a bank or online broker.
- Think about the risk – Remember that investing always involves risk, so remember that you can always lose money on an investment.
If your goal is to become rich than investing a certain amount every month is key factor on the path towards finnacial freedom.
But I cant prefrence this enough, investing in the stock market always involves risk so take my advice and further expand your knowledge on this topic before doing anything.
And I mean if I can do it, you can do it, so why not right?