The stock market has been for years the safest way to generate passive income and make money work for us.

Greetings, friends!

Today we are going to know how the stock exchange works in a very simple way. It is an issue that may seem complicated, but it is not so, it really is a very simple subject to understand and each one of us can take advantage of this method to invest our money and generate constant income.

To understand the example that I will show you next, we must first know what the stock exchange is and its function in society.

Stock Exchange

The stock market is the place where entrepreneurs sell part of their company in the form of shares, to obtain an investment fund and thus achieve growth and expansion. Basically each businessman to sell their shares in the stock market, is delegating part of it to that person, depending on the amount of shares obtained by the buyer, will have more or less power over the company in which he invested his money.

The way in which a company can grow is using extra money, so through the stock market they get partners that contribute that money through the purchase of shares, that is, people like you and me who buy their shares, investing our money in the company, this makes us shareholders of the same. So that people can know in which they will invest their money, the company provides all the necessary information so that any person can evaluate their performance and decide how many shares to buy.

Once all the shares that the company offered on the stock exchange are bought, the process of exchanging them is started, that is, since there are no more shares to buy, people buy them from each other, using the bid process and demand, which consists in setting a price on the part of the holder of the action and deciding whether it is a profitable price for the purchaser of the action. All this based on the profitability of the company and the growth rate it shows over the years, thus increasing the demand for each of its shares.

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Fuente

The stock market handles large amount of statistics, investing in it requires a basic knowledge of them.

Now that we know what the stock market is, let's look at a simple example of how it would work.

Imagine that today you decided to open a fruit and vegetable business, you got the money to open it and put it into operation, as the months go by the business growth is good, you managed to add a lot more variety of vegetables and fruits, you hired a couple of employees and everything is working correctly. After a year as you have managed to advance a lot in your business but there is something that worries you, the growth is not as fast as you expected, that is because your business is in a place where not too many people live and it is not very central, for which you want this to expand to other businesses more central, where there are many more people who can buy your products.

The problem with this extension is that to do it you must wait a long time to get the necessary capital, since your business produces money but not so much. It is there when the option to sell shares in the stock market becomes profitable, since through these you can obtain all the money necessary to open this second business, to continue expanding and growing. When calculating the money you will need to open a new business in the center, you reach the conclusion that with $10,000 you can afford all the expenses of the new business, for that reason one day you decide to offer 1,000 shares of your company in the stock market , with a value of $10 per share, that way you'll get $ 10,000 of investment fund for your new company. At the end of the sales of the shares, your fruit and vegetable business does not belong only to you, now it only belongs to half, since the other half belongs to each of the company's shareholders, that means that half of the profits of the new business are for you and the other half is shared among all the shareholders.

This is where the exchange of shares between investors comes in through supply and demand. Now imagine that your business is growing in an extraordinary way and the profits increase every day, that makes the demand for the shares increase and the shareholders can sell them much more expensive than they bought them. That is to say, José bought an action of your company in $10 and now as there are many people who want those actions, he is willing to sell it more expensive, he asks for $30 for his stock. Another person, knowing the profitability and growth capacity of the company, buys that share at $30, generating a profit for Jose of $20. This person who buys it expects the company to continue growing to one day sell that much more expensive stock and make a profit, just like José did.

But why do people want those actions?, this happens because of the dividends they obtain for each one, since the more shares they own, the more money they will obtain in the distribution of profits of the company, which is normally done every 6 months, in this distribution the earnings of that semester are evaluated, allocating a part for the reinvestment in the company to guarantee growth, and the other part for the personal earnings of each one of the investors. In this case you have half of the remaining profits and the other half will be divided among the 1,000 shareholders of the company. For this reason, the more successful a company is, the more demand each of its actions will have.

If given a case the company decides to invest all the profits in growth and reinvestment, the profit of the investors would be different, since what would increase would be the value of the shares and could resell them much more costly with the passage of time, but not they would make profits every 6 months. Without dividends the company will grow faster and the shares will be worth more, but it is a long-term gain.

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Can we Venezuelans invest in the stock market?

Fuente

We can do it in the Caracas stock exchange, entity that is mainly responsible for negotiating the purchase and sale of securities. Through it, you can buy stocks, bonds, certificates, participation certificates, among other investment instruments. This is where Venezuelan companies come to finance their expansion and growth through the sale of shares.

To invest in the stock market we must go to a brokerage house of independent brokers or financial institutions, which are distributed in different areas of Venezuela. Before making any investment we must go to an expert in finance to know the most profitable options at the time of investing, as well as the companies that have the highest growth at present.

Regrettably, the current value of the Venezuelan currency is very unstable, so investing in the stock market can be very unprofitable. In spite of this, if the company is chosen correctly in which to invest, good profits can be obtained.

The concept of a stock exchange is very simple and is available to all of us, it is important to know this investment alternative and be encouraged to try it, since it can be considered the most profitable way to obtain passive income. It is important to invest to obtain good long-term profits.

Until next time!.