Investing in Securities
The international markets for publicly-traded stocks have become highly democratized over the past forty years, enabling even small investors with limited means to invest in securities. In essence, a securities investment gives the investor an ownership interest in the company whose shares the investor purchases. Investors derive benefits from securities ownership both when the shares increase in value and when the issuer realizes a profit and declares a dividend that is then paid out to owners of its shares.
Share price and value are dependent upon multiple factors, including the underlying fundamental aspects of the issuer's business, the relative performance of the issuer's business in comparison to competitors in its industry sector, and the overall economy. Investors can evaluate these factors on their own, with publicly-available information, or they can rely on the expertise and analysis of financial advisors that perform evaluations for them. Investors and advisors might also evaluate share price on the basis of more technical analysis that looks at pricing trends apart from an issuer's business fundamentals.
The issuer of publicly-traded shares is generally obligated to disclose substantial amounts of financial and management data to allow investors and professionals to perform these evaluations. One of the more basic data points that stock issuers disclose is the total number of their shares that are traded publicly, and the relative ownership percentages held by the investing public and major shareholders. An issuer, for example, might have 100 million shares of its stock issued and outstanding in the public trading markets. An investor that holds 100,000 of those shares has a 0.1% ownership interest in the company. An insider or an institution, on the other hand, might own 5 million shares, which represents a 5% ownership interest. In this example, 5% might not appear to be a significant amount, but if no other investor owns a similarly large percentage, the 5% owner can effectively control the issuer's affairs.
Stocks are only one of several types of securities that an investor might purchase. Investors also have an opportunity to purchase bonds and other debt instruments, options, futures, mutual funds or exchange-traded funds, and other more exotic derivative products that track the value of other securities. Investors with substantial investment portfolios will typically invest in a variety of different securities that are from issuers in different industry sectors. This allows the investor to develop a diverse portfolio that can best withstand adverse events that affect only one or a small handful of the portfolio assets that the investor holds.
An investor with substantial assets who desires to invest in securities will be best served by formulating a unified wealth and investment management plan that establishes goals and strategies to guide investment decisions. A good plan will include strategies to handle market downturns and adverse events, to address the erosion of portfolio value by taxation, to pass wealth along through several generations, and to enable rapid access to liquid cash in the event that other investment opportunities arise or the investor or his or her family have a sudden need for cash.