Anyone who assures you that by buying the stock of this or that company you are going to make fortunes, is lying. Does that mean you can’t earn money by investing in companies? No!
It means that you have to understand how you can win and what risks we run..
What does it mean to “buy shares”?
First you have to understand what an action is. It is a title deed to the smallest part of a company. We can be partners in a butcher shop or an alfajores factory and have shares in those businesses. For that they have to be structured as a corporation (S.A.), the equivalent of those incorporated in the United States (Inc.) and divide its structure into minimal portions. When we invest to create a business from scratch we are injecting capital into it in exchange for owning that part, which is issued as property titles. That is, at that time shares are issued, not bought.
But we can also buy shares of companies that have already grown and went public in a market through what in English is called IPO (Initial Public Offering), where the company is capitalized in exchange for authorized shares so that they can be bought and sold. freely during operating hours through public offers. The exchange allows anyone who has an account with an agent to do so. From the moment that the shares were already issued to be listed on the stock market, the exchanges are money in exchange for the shares that someone already has from before. By acquiring shares we become partners of that company and we have a percentage of the business and that involve a series of rights. The main ones are the right to receive part of the profits that are distributed and to vote at the shareholders’ meeting if we want to participate (it is not the most frequent when one has a few shares since the normal thing is to have 1 vote per share). Those who gather 51% or more of the votes control the business.
How can you earn (or lose) money with stocks?
There are three ways to earn money by buying stocks.
The first is by choosing companies that register profits and distribute part of those profits among their partners through the payment of dividends. We can know if a company made money in the past (and if it distributed dividends). But it is difficult to know in advance whether it will do well and if it will decide to distribute profits in the future. No business is guaranteed to make money and the distribution of the profits depends on what the majority of the shareholders decide at the meeting.
The second way is to buy shares in a company that, after a certain time (an hour, a day, a week, a month or a year), are worth more. That the shares of a company rise makes the company worth more because in the market there are transactions where those shares are bought and sold at increasingly higher prices than when we bought them. This basically happens because a trend is sustained where there is greater demand for those shares than supply (more interested in buying than selling) because the company has very good results or a very good outlook. These variations are also measured in percentage terms. But we cannot annualize that result as if it were a rate because it is not a guaranteed business. We can only take the rate as an opportunity cost of what we could earn. Another difference with earning a rate is that to effectively earn the difference for the current value of the share in relation to the moment of purchase we have to sell the shares and “realize” the profit. If not, we continue to have stocks that are worth more, but we do not assure that value (it can easily go down).
In fact, this stock price logic works both up and down. We can lose money if we end up selling below the price we buy. We are not obliged to do so, as long as we do not realize the loss we will have something that is worth less than what we invested and we will have to wait for it to recover. If it happens. While we do not, we assume the opportunity cost of not investing in something else.
Finally, you can earn by borrowing the shares of a company that we believe will decrease in value with the commitment to return them in X time. We sell them and then when it is time to return them, if the premise with which we speculated was fulfilled and the shares are cheaper, we buy them back and pay off the debt, with a difference in our favor. This is called “short sale” (in English it is the famous “short”) and is done through the provision of guarantees. It is what prevents that if the stock rises too much, the speculator cannot cover the loss that the operation would generate.