The stock market offers one the opportunity to have short- or
long-term gains. However, not everyone is cut out for such
investments. For one, the idea itself of partial ownership in a
company by buying shares may not actually be that interesting to
some.
Owning stock also exposes one to the risks a particular company
faces. If the business is reported to have financial
difficulties, legal problems or other issues, its stock is
likely to be affected, fall and consequently, also pull down all
investors in the company.
An individual who intends to invest in the stock market must
recognize that gains generally come after an extended period of
time. In addition, even short-term results are not always
assured, as negative economic or company news can quickly wipe
out any gains. This means that an individual must be patient in
waiting for the investment to pay off.
This patience extends to market timing in the case of short-term
traders, who aim to move in and out of the market based on what
they feel is the most opportune time to do so. The problem with
this approach is the assumption that the market can be
consistently predicted - a condition that most financial
advisors believe would be virtually impossible.
Discipline and flexibility are two other traits needed by
individuals who decide to invest in the stock market. Market
stability is not always a given, and there will be periods when
the market may be volatile. This happens particularly in the
event of a major disaster such as the September 2001 terrorist
attacks in the US, and the havoc caused by recent hurricanes
Katrina and Rita, which forced the shutdown of major oil
refineries in the Gulf of Mexico.
When these situations arise, predicting the direction of the
stock market becomes difficult due to resulting fluctuations,
making it necessary for an individual to remain disciplined with
investment strategy but flexible enough to adjust to the
situation.
Investors also have to put in some research before selecting any
stock. Among the factors they need to know are a brief history
of their target company; the company's parent, subsidiaries and
other affiliates; earnings movement; expansion plans and
management structure. These would give an individual a fairly
good idea of how stable a company is and help project the
company's direction and future.
Having an interest in a company through shares of stock thus
poses both risks and rewards. However, the stock market may not
be an ideal investment vehicle for individuals without patience,
discipline, flexibility and enough diligence to conduct
research.
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