The dynamic world of investments can be rather overwhelming, especially for beginners. There’s a silver lining though; innovations in investment vehicles such as Exchange-Traded Fund (ETF) empowers more aspiring investors to build their wealth akin to how professional fund managers manage unit trust funds.
Before we delve further into ETFs, let’s explore the traditional form of investing – Stocks. Stocks, interchangeably known as shares, are a form of equity ownership in the invested company. If you purchase a share of Apple stocks (AAPL), you are then a part owner of Apple Inc. and are entitled to voting rights and profit sharing, in the form of dividends.
One of The First IPOs
The history of stock issuance can be traced all the way back to the 1600s when the Dutch East India Company offered shares to investors who would finance the voyages into the sea. Investors would then get a percentage of the profits from the spice trades – an attractive proposition at that time. However, not all spice trades were profitable and investors were expected to share both the risks and returns with the proprietor. The Dutch East India Company was largely believed to be one of the first companies to issue shares in an exercise, now commonly known as an Initial Public Offering.
Share Price Drivers
Stock ownership allows investors to provide capital and participate in the growth of the invested company. Today, stocks are listed on exchanges where prices are determined by supply and demand. Theoretically speaking, a company with good growth prospects will see its price appreciate as demand exceeds supply for the shares of the company. While there are short term factors, such as the underlying economic sentiment or other qualitative factors, the growth drivers of long-time price appreciation remain to be the reliability of the business model and growth.
For an individual investor, the effort required to perform company screening, business studies, financial analysis, following and understanding its news flow, and more, may drive the average investor off due to the need for a particular skill set that takes time to master.