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Introduction to investing for beginners. [Part 1]

theWest
By theWest | self meida writer
Published 7 months ago - 0 views

Many people think investing is a very hard thing to practice at least that is what I first thought when I wanted to learn more about investing. Investing is actually very simple and in this article I will simplify what investing is all about from scratch.

Let us use this illustration as this will simplify everything for you. 

Let say Mr. A want to start a business of selling apples then Mr. A was able to save some amount of money for his business and he begin to sell apples. Now Mr. A already have a business which he is running but his dreams for the business is to sell apples across the country. Mr. A does not have enough money to get enough apple stores to distribute across the country so Mr. A decided to go public which is called IPO. What is IPO? IPO stands for Initial Public Offering in this process Mr. A sells a part of his apple company for a particular percentage and in exchange he gives the investor a certificate for purchasing some percentage of his company. 

So now Mr. A has sold some percentage of his company through IPO and has gotten some amount of money to open some stores across the country. This is how investment works in a new business. 

Mr. A apple business is booming and everyone want to buy a share with Mr. A company. One of the people who want to buy Mr. A shares is Mr. John, Mr. John did not know about Mr. A apple company when he started but now Mr. A apple company is know well know around the country so this has attracted some investors like Mr. John. So Mr. John is ready to buy a particular amount of shares from Mr. A company. How is he going to go about this? Mr. John is going to look for investors who have shares with Mr. A company and is willing to sell it. So in exchange the investor will sell some percentage of Mr. A shares which he bought earlier when the business started in the present value of the shares. 

Let say when Mr. A newly started his apple business, 1 share was equal to $1 now that the business is going well the present amount of share at the time Mr. John is willing to buy might be $5. So $5 is the present value per share of Mr. A business. 

Now let get to understand how the Stock Market works.

Before a company can start IPO it has to go through some steps first. I hope you understand the explanation above so let continue to the next stage. Before Mr. A start his business his savings was not enough to even rent an office space. So he called all his family members, friends and close relatives to invest in his new business but not all his family member was ready to part away their money except from his elder brother. So is elder brother invested $10,000 in exchange for 20 percent of his company this might not look much but his brother just valued you business for $ 50,000. Okay you already have some little amount of money so you begin to execute your business ideas and you got an office space and the necessary documentation for your business. Okay now you ran out of money so you begin to look for another set of investors because the investors like your idea and believed your company is going to thrive and you already have the necessary documentation then you were able to convince them to invest in your business. Just before that there is something called PRE MONEY VALUATION and POST MONEY VALUATION.

But we won’t be going to that as for now in order not to let this article too long and boring. So in order to see the next article follow me and comment PART 2 as this will encourage me to post the next one.

Don't forget to like comment and share this article to any of your friends who is willing to learn about investing

Thanks for reading. 

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