Why Own Shares – a few Pro’s and Con’s
Why own shares?
It’s almost the year 2020, the Stock-market has existed for more than 3 centuries. Is investing in equity still relevant today?
Below is a non-exhaustive list of some of the Pro’s and Con’s to equity investing?
Pro’s
· Stock markets are more liquid (easily convertible into cash) than any type of capital (Bonds, Private Equity, Venture Capital, and Alternate Investments), other than cash. Once can enter and exit a share in mere seconds, on some of the more sophisticated exchanges.
· Shares do not have an expiry or maturity date (date at which the issuer pays the investor their full amount of capital invested). As a result, ownership of shares entitles shareholders to perpetual dividends for as long as the underlying company is in existence.
· Listed companies have to adhere to strict compliance and audit procedures. For the most part, one can rest assured that what you see in their financial statements, is what you get. But remember, as with all things in life, there are exceptions (ENRON: Google it!)
Con’s
· Global Stock Markets are inextricably linked. Market sentiment is said to spread as fast as any news is released. What occurs in China could affect a share price in Zambia. Share investors need to be mindful of global market events before pulling the trigger on their next purchase.
· The process of issuing shares requires input from legal counsel, a sponsor (usually an investment bank) and an auditing firm, all of whom charge by the hour! The process of maintaining a listing can cost a lot of money.
· Owning shares over the long term can result in large booms (accelerations in price) and busts (decreases in price) this process requires lots of patients and can lead to anxiety. Miss-timing a boom or bust could make or break an investment.
Sources: https://www.bloomberg.com/
I’d love to hear your views and start a conversation. Connect with me on Twitter – @lance_trader
Hey Mark. Finally a comment. Yeah man. I agree with everything you’ve mentioned above. This article was just meant to wet the appetite. We will get to investor education in the coming months. Imho while there is value to paper trading, I believe it does not fully capture the psychological aspects of investing and as such has limited value to the armchair investor. I am a much bigger proponent of starting small, with less than R500 even, on an easy to use platform with low fees (EasyEquities springs to mind). Thanks so much for your response. Let’s keep the dialogue going.
Hi Lance,
Lovely, to the point, intro for folks to shares!
Just a little concerned that you did not mention the one most important point of all.
Before, day trading, swing trading or longer term investing it is empirical that one does a little self education, homework and theoretical practice.
Understanding that investing is somewhat different to active trading, it is still possible to acquire some educational reading material, study up a bit about buying shares and do a little in depth study on the performance of different shares, on say Yahoo finance and then paper trade, even investing style, over say six months to a year before you run out and buy shares on the advice of your hairdresser or dentist!
Make informed decisions because there are no “free lunches” in the stock market.