Many beginning investors, and just people who want to increase their horizons or financial literacy, are interested in stock returns. However, before answering the question posed, it is important to give a few definitions and figure out what is being discussed.
What is a stock?
The simplest and most common definition of this concept is that it is a special type of securities, which is an indication that the investor (shareholder, owner of shares) has any share in the enterprise.
Why is this needed? This happened historically, because large organizations need additional financing, which they receive by selling securities. Thus, companies attract new funds, which allows them to make even more transactions and achieve even greater turnover. It turns out a kind of vicious circle, thanks to which organizations use additional funds.
Why buy them?
Many readers will probably ask this question. It is clear that no one will make any gain at a loss to himself. This is where the discussion will be about what is the return on shares. Why it is needed, there is no need to explain, because every potential investor wants to make a profit. However, since the acquisition of a security, its owner is considered not only a full shareholder, but also an investor. In fact, having made some kind of investment, you can count on additional profit in the event of an increase in the value of the acquired asset.
Stock return: types
It will not be a question of various enterprises, although their securities really differ both in value and in other parameters. There are many classifications, and then the most significant of them will be listed and described.
The expected return on the stock . If you avoid various mathematical formulas and specific terms, then this is the approximate value of a security after a period of time. As a rule, investors create portfolios, and the term expected return is more applicable to them. Portfolio - a set of various securities that are acquired in order to obtain income from changes in their value, it may include income from dividends, and other factors.
Current stock return . It will be about the value of the security at the moment. For example, you once bought shares of an enterprise for 10 rubles and sell for 15, after the transaction your profit will be 50%. However, in reality this happens quite rarely, and the cost changes slightly. It is important to note that this type of profit making is also called the term market stock return . Securities are often quoted on exchanges, and their price changes every second.
Dividend yield . Many, especially conservative investors, like to buy securities for a long period. The holder of shares has the right to payments, however, only on condition that the company issuing the shares makes such a decision. The amount of dividends will depend on the average annual value of the security, as well as on the financial condition of the enterprise and, possibly, other factors. As a rule, payments occur once a year. In this case, no one forbids the investor to sell securities in the event that he is not satisfied with the amount of dividends, or after receiving them.
Who issues shares
They are issued by joint stock companies. At present, in Russia there are two types of similar legal forms, namely:
- Public Joint Stock Companies.
- Joint stock companies.
They have their own differences. As for the public (they used to be called open), they do not have a limit on the number of shareholders, as a rule these firms are larger and well-provided. In the second case, the number of holders of securities may be limited by certain legal aspects.
In addition, shares are issued by foreign firms. In the West, this is called IPO. Next, we will talk about them.
Stocks
Stock markets exist in many countries and sometimes cities. The largest are located in the USA, Europe, Hong Kong. In Russia, the most authoritative organization that carries out such activities is the Moscow Exchange (MICEX, moex).
Working with exchanges is a very difficult and costly task. The profitability of stocks of foreign companies changes almost every second, and if you take longer periods, then in a week the price may fall or grow by several dollars or even more.
If you return to domestic companies, then they are also on the exchanges. The return on shares of Russian companies depends on many factors, which will be discussed below.
Recommendations
Before you start working with securities, you should carefully study the specific literature, many articles and preferably legislative acts related to this topic. You might want to become a shareholder of an enterprise directly, for example, a well-known local factory. In this case, you don’t have to work through exchanges, and knowing the specifics will reduce some risks associated with loss of value or the absence of dividends. However, this does not mean that these securities will be absent on the exchange; most likely, operations with them can be made there. In general, investment can be an attractive source of additional income.
Summary
Thus, the reader has learned what stock returns are and what types are there. In addition, the topic of exchange trading, work through stock exchanges, which will require additional knowledge and large funds, was raised. If you still decide to engage in investing, then it is better to study this topic in more detail on specialized resources.