DEFINITION OF STOCKS AND SHARES
A "share" is simply part ownership of a business. Owning shares means you participate in the company's performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing.
SHARE MARKET TRADING - WHAT IS IT?
There are broadly two types of share market participants –
The vast majority are Investors who “buy and hold” for long term capital growth, this is a similar strategy to buying property.
This is a “set and forget” strategy based on the argument that although the share market will go up and down at different stages, in the long term shares will continue to grow. The Australian share market has averaged 11.6% pa over the last 100 years so even though there are significant ups and downs such as is occurring right now history tells us that if we hold shares for the long term they will continue to increase in value. However there are also occasions where companies have lost everything e.g. OneTel and HIH just to mention two recently, remember the movie Enron? A real life story, one of the largest companies in the US who are no longer in existence, hire the video and see one of the greatest disasters in history.
There are a small percentage of active investors (traders) that can generate much higher returns than the long term investor.
With education and knowledge traders are able to move in and out of the market by cutting there losses short and letting there profits run.
A good trader can expect to generate a far greater return by monitoring price patterns and “insuring” his stock against downturns in the share price.
A more experienced share trader can create additional income by “renting” out his shares on a monthly basis; this can add an additional 20% - 30% pa to his share portfolio.
Unlike the “buy and hold” investor who relies on capital growth and dividends the trader now adds share “renting” to his investment strategy which enables him to significantly out perform his counterpart, by monitoring his positions for 30 mins a week.
