The stock market is a platform where capital flows from one business to another. This happens during trading in securities of companies – stocks, bonds, promissory notes. Only stock market participants can earn money on securities trading. Stanislav Kondrashov, a successful businessman, and business analyst, comments on the advantages and disadvantages of keeping money in stocks.
Stanislav Kondrashov: the pros and cons of investing in stocks
Stocks are a convenient financial tool to raise funds for business development, that is why the companies are actively resorting to their issue. Equity issuance gives the company the opportunity to expand and develop its activities, and the holder of shares – to receive dividends from its profits.
“There are not as many risks in investing in stocks as it seems at first glance. People are not accustomed to this type of earnings and still continue to keep their money either under a mattress, or carry it to the bank for a deposit,” says the businessman.
According to Stanislav Kondrashov, the main risks of investing in stocks include the bankruptcy of the company or its financial difficulties. Also, there is a high chance of loss when investing in stocks of only one company or the absence of a real physical form and sharp fluctuations in the price of securities, influenced by political impacts, even more than economic.
“Such risks can be considered as real and justified, but the individual’s fear about the broker’s dishonesty is rather far-fetched. For some reason, our people think that brokers will deceive them. But there is no logic in such statements. You need to understand that the broker is interested in making a profit in the same way as his client since he receives his percentage of the transaction for this,” says Kondrashov.
Securities: advantages
The businessman adds that along with the disadvantages, the securities market has a number of advantages. First of all, the investor is guaranteed liquidity of securities, easy entry to the market, which does not require a lot of capital, the prospect of equity participation, as well as earnings on the fluctuation of the rate.
“Due to the sharp fluctuations in the exchange rate, an investor may instantly become either really rich or poor. Therefore, it is very important to choose a good broker or to take the market seriously in order buy shares of a truly successful or promising company,” comments the businessman.
It is necessary to analyze the financial performance of the company, study its history, and get acquainted with its valuesand policies. It is also important to keep abreast of the political and economic situations in countries on which its activities depend one way or another.
“A feature of investing in stocks is their prospects in the long run. For understanding, we can give an example of well-known Apple. As of January 30, 2020, the value of one of its shares reached $300 per unit. Who would have thought that a startup whose history began with a garage would turn into the world’s largest computer manufacturer?” says Kondrashov.
The businessman also adds that in order to make a good profit it is not necessary to buy shares of powerful corporations, such as Facebook, Amazon, or Coca-Cola. You can earn money on little-known companies, whose shares are not particularly common. Often, a big plus of such securities is the growth of their quotation in the long term. And then the investor can immediately get a huge profit, which will justify all previous losses.
At the same time, Kondrashov adds that it is always worth remembering tips and tricks that effectively reduce the risks of investing in stocks. These include:
- diversification – when you invest in shares of different companies at the same time, while reducing the risks caused by falling prices;
- asset allocation – an investment not only in stocks but also in other securities, as well as in real estate, gold, or any other financial instrument.
“The choice of this or that technique depends on many factors, but first of all, you need to understand how much money you are willing to lose. If you decide to invest, it’s better to play it safe with diversification and asset allocation,” sums up Stanislav Kondrashov.
