The stock market is another way of diversifying your investments. If you bought some company shares through the stock market, it means that you’re a part owner of that company. But being a part owner isn’t the only perk you’ll enjoy. You’ll also benefit from your stock purchase when the company performs well.
There are generally two ways of earning in the stock market: Dividends and Capital Appreciation.
Dividends
A company can issue dividends to share a portion of its earnings to its shareholders. The dividends could be in the form of additional stocks or cash. They go directly to the investor’s stock portfolio (for stock dividends) or account balance (for cash dividends).
One important thing to remember about dividends is that they’re not guaranteed. If a company isn’t doing well, it may not issue any dividends.
Eh paano ko ba malalaman kung kumikita yung kumpanya? (How would I know that the company is gaining profit?)
Do your homework. Visit the company’s website and look at the financial reports. If you own Meralco shares, for instance, go to the “Investor Relations” page and check out their quarterly or annual earnings.
Alternatively, you can use Google to research and review news sites that talk about the company’s earnings. You could also try to find out if the company will be issuing dividends to its stockholders. Even if the company is doing well, it may decide NOT to issue dividends in favor of reinvesting its earnings to increase its value. This can sometimes boost its share price.
Capital Appreciation
Capital appreciation happens when a stock you own goes up in value. If you hold onto a stock that has increased in value over time, you have what’s called unrealized gains or paper gains. You can lock in these gains once you sell your stock. Since the share prices fluctuate when the market is open, you’ll never know how much you’ll make until you sell.
Remember: If you want to earn from the stock market, you can’t just buy shares from any company and expect it to make money. It’s vital that you do your research first before you make your first stock purchase. Aral aral din pag may time!