Investing in stocks can be a great way to appreciate your capital. But where to start? If you don’t have any experience of investing, read our guide first, which will explain the basics and explain what and how. Caution is in order.
Investing in stocks can be a great way to appreciate your capital. But where to start? If you don’t have any experience of investing, read our guide first, which will explain the basics and explain what and how. Caution is in order.
Shares are a basic investment instrument that you can purchase through a stock exchange or stock funds. Shares are an absolutely key part of the financial market. They are issued by companies and individuals can become a small part owner of a company by buying them. They then acquire rights to participate in some of its decision-making, for example by attending its general meeting. The key for shareholders is, of course, the dividend, i.e. a share of the company’s profits. This can be expected in stable companies that show growth.
Dividends tend to be paid at regular intervals – usually annually, but sometimes quarterly.
Share value and share price are key factors that influence investment decisions. It is important to remember that you can not only make money on shares, but also lose money. Or both in turn. In fact, their value can be variable depending on many factors. This means that you need to choose a good product that allows you to maximise your profits. But which product is good is a question that has no certain solution.
Listed shares then are one form of shares that were common before the advent of digitalisation. The following five pieces of advice are the real basics, but it’s good to keep them in mind.
Are you looking for an answer to a specific legal question related to shares and investing in them?
Contact us. Our team includes specialists in all areas of law, so we can guarantee really high quality legal advice. What’s more, we can give it to you online and within two working days.
The following five tips are the real basics, but it’s good to keep them in mind.
Before you start investing in stocks, you need to get as much information as possible. If you’re thinking about how to buy shares, look at the stock market or use the services of investment companies. You should learn about the different types of stocks, know what growth and dividend stocks are, where to buy stocks and what to look for when you want to invest. You should also familiarize yourself with basic terms such as share price, stock fund, stock market and others. We’ll explain many of these below. In fact, buying shares, including employee shares, varies depending on the market you choose and the type of investment. The price of a stock, whether it is a preferred stock or a common stock, varies with the market. Stock investing, in turn, requires monitoring the current value of the stock and estimating future trends.
Before starting the actual investing, it is important to define your investment goals. Do you prefer to invest for the long or short term? How much of your capital will you invest? Depending on this, your strategy may subsequently vary considerably.
Investing in shares can be risky. That’s why it’s important to consult a financial advisor or trader before you start investing. A financial advisor can help you choose the right type of stock and find the right platform for investing. We have contacts for good advisors.
To start investing in stocks, you need to choose the right broker, i.e. a licensed securities dealer. They may differ, for example, in the level of fees they charge or the way they trade and place orders.
You should only invest your spare funds that you do not need for important expenses such as rent, food and medicine. You should not risk your life savings by investing. You must take into account that in the extreme case when the investment does not work out, you may lose a substantial part of these savings.
If you are a beginner, start with small investments and gradually increase them.
Investing in stocks is an ever-changing market. If you enter it, it’s important to keep learning about new trends. You can read the news, follow commentaries and discuss with other investors. Ideally, if you have a market area in your minor (such as telecommunications or healthcare), you know which stable players are in the market, what the future holds and which company or companies offer it. Better still, if it is linked to a unique product that has the potential to change the market.
Investing all your resources in the shares of one company is considered by experts to be too big a risk. On the contrary, it is recommended to choose ten to twenty companies that you trust and expect to grow. You can help yourself with information on the financial situation of the companies, which you can obtain, for example, from their income statements.
It is also very important that you know when to buy and sell shares.
Another way to spread the risk is to invest in a mutual fund. Stock funds, such as a specific stock fund, are a popular way of investing in stocks for less experienced investors. Equity funds are groups of stocks that are managed by a professional investment fund. Stock funds allow you to invest in different types of stocks without having to buy each stock separately. Stock funds can be either passive, which means the fund follows the market, or active, which means the fund can buy and sell stocks at any time. Investing in stocks through funds allows you to diversify your risk.
If you are already clear about your intentions, contact the securities firm directly. You can enter into a contract with them and then place an order to buy shares (via a form, by phone, email or over the internet). You specify the name of the share, the number of shares and the limit price you are willing to accept for the purchase. Once you have purchased shares, you will receive a confirmation or confirmation of what shares you have purchased and for how much.
There are a plethora of classifications and characteristics of shares, depending on their legal form, market behaviour or form. Let’s take a look at some of them.
The division is based primarily on the security it brings to its holder. While dividend stocks are generally a guarantee of moderate growth. Any downturn (which can always occur) should not be as pronounced as that of growth stocks.
In contrast, growth stocks often represent the “startups” among stock companies. That is, young, predatory companies that are expected to grow rapidly. If you get it right, you can appreciate your investment by tens of percent in a year. As a rule, however, you’ll have to wait a year to see such significant appreciation. And at the same time, if your guess doesn’t work out, the downside can be as significant as the upside.
It is recommended to have both types of stocks in your portfolio to balance the risks a bit.
Bearer or registered shares are a type of shares that are issued as a right to own shares held by a company. Shares can be traded on an exchange or over-the-counter. They are physically transferred between the buyer and seller directly, without the need for any market participant such as a broker or broker. It must be said, however, that this variant of shares was already banned by Czech law several years ago in order to make the ownership structure of joint stock companies more transparent.
Registered shares are already issued in the name of a particular natural or legal person. The joint stock company is subsequently obliged to list the shareholders who hold these shares.
Book-entry shares are shares that are listed on the stock exchange. These shares can be traded on the stock exchange and are usually available for public purchase and sale. In contrast, book-entry shares do not exist in physical form but only as a book entry with a central securities depository.
Ordinary shares are the basic type of shares issued by a company. They are typically associated with the right to participate in the general meeting and the right to receive dividends. Preference shares may or may not be issued by the company. If it does so, they will take precedence over other (ordinary) shares. These shares have the right to preferential dividends and also have the right of first access to any available capital when needed. Preference shares also have the right of first access to any settlement of the company’s assets in the event of its dissolution.
Tip: Employee shares are shares that are issued to employees as a form of employment benefit. Employee shares allow employees to gain a stake in the company and benefit from the increase in the share price. However, they are not a special type or kind of stock that is different in any way from others. A certain analogy, which can be applied not only in joint stock companies, is the little-known employee incentive scheme ESOP, which we have discussed in our separate article.
Investing in “crown shares” has its advantages and disadvantages. The advantage is that you can focus only on the company as such and no longer care about the appreciation or depreciation of our currency. The disadvantage is that you are limited only to shares traded on the Prague Stock Exchange.
If you dare to invest in euro, dollar or other shares, you are exposed to so-called currency risk. In addition to the appreciation of the shares, you are also watching how the koruna is doing. A strong koruna will cut much of the profit when you sell shares in euros and then convert them into Czech currency. The solution may then be to keep the profit in the acquired currency if you have a use for it.
Whether you decide to buy a listed share or invest through equity funds, always keep a long-term goal and strategy in mind.
For stocks, familiarize yourself with the principles of investing, types of stocks and their returns. You can buy shares through stock exchanges, funds or brokers. Think about whether you want to invest for the long or short term and determine the amount of capital you can spare. Combine different types of shares (growth, dividend) or consider investing in equity funds that spread risk. A financial advisor can help you choose a strategy, the right broker and the right investment platform. Invest only discretionary funds and do not use money earmarked for important expenses. Constantly expand your knowledge of market trends and keep checking the value of your stocks. Never put everything on one card; ideally, invest in a portfolio of multiple companies. Investing can bring high profits, but it can also bring losses. Information and balance sheets are your key allies.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
