FXSTD – Alternative Energy Center

By: Gen Wright
Alternately known as "stocks" or "equities," the term "shares" most accurately describes what you acquire when you invest in a company: When you buy "shares," you gain ownership in your company-of-choice. Therefore, you have influence over its growth and direction-at least to the extent that you vote at company meetings; and, to some extent, you affect the company's day-to-day operation. "Share," of course, is not just a noun; it's also a verb, which here means that you share in the company's fortunes. When your business turns a profit, you receive dividends and the value of your equity rises. When your business falls a little short of its forecasts or loses a little of its market share, you may forfeit your dividend, watching the value of your stock decline.

Prudent investors steadfastly follow one cardinal principle: Buy and hold! Stock traders who buy and sell as frequently as schoolgirls change outfits have far more in common with gamblers than with businessmen. And experience shows that stock market gamblers typically fare about as well as mediocre players at an all-pro poker table. If all of a company's leading indicators do not support your decision to risk your money on the enterprise's continued growth, you should look for a more promising investment. All share dealers will remind you that past performance is not an assurance of future performance. But if a company's share price steadily has risen over several decades, you reasonably may infer that it will continue to rise.

Business ventures "quicken," taking on lives of their own; it's in their nature to grow and evolve. Conservative long-term investors will risk their money only on "mature" companies which have fulfilled their potential and remained at the top of their industries. Moderate risk-takers will look for companies just beginning to flourish, seeing that their shares steadily have risen in value as the company has grown its market share and increased its profits. All share prices will fluctuate over the short term. A minor dip in share prices means very little. When share prices steadily decline, however, prudent investors acknowledge they should sell.

Not every stock market axiom applies in the real world. Just about everybody can explain the "risk-reward ratio": the greater the risk, the greater the reward, the saying goes. It goes far better for poker hands than for stocks, though. In the late 1990's, all internet start-up companies seemed both promising and risky. In 99% of cases, the risk far outweighed the promise, because the "dot-coms" produced no useful, durable goods. Although a company's production of desirable products dramatically reduces the risk you take when you invest in that company, it typically increases your reward. Even a cursory examination of today's NYSE or FTSE share prices will show that British Petroleum and other energy producers, the companies with today's most desirable products, still have the highest values. Similarly, even in the throes of worldwide economic despair, shares of Rolls-Royce have held their value, while shares of promising solar energy companies have tumbled.