Direct Investment in Stocks

Investing

Direct investment in stocks is the direct purchase of a company's stock, as opposed to the purchase of mutual funds or options. There are many risks associated with direct investment in a company, but there are also strong benefits when the stock increases in price. Direct investing is easy; you simply establish an account with a broker and purchase a block of stock in a company. Anybody can establish a brokerage account with a stockbroker. Although the process of direct investment is simple, the price may inhibit some investors from this activity. Direct investing, even on a minor scale, requires a commitment of at least a few thousand dollars. You must be a legal adult to directly invest in a company.

Equity and Dividends

When you purchase the stocks of a company directly instead of purchasing shares of a mutual fund, you have an equity stake in the company. This means you will receive dividends. Dividends are small payouts of money every few months.

Annual Meetings

As an owner of the company's stock, you will be able to attend their annual meetings and have unique access to the company's factories and facilities.

Voting Rights

When you directly invest in a company, you have voting rights in the company's decisions. This means you have the right to vote on the company's direction; you are not on the sidelines of the activity. You have a direct effect on the company.

Board Selection

Gavel

As an equity holder in a company, you have the right to vote on who will be a part of the company's future. The board of a company is responsible to share holders for their actions. This means you may be involved in the firing of board members and the hiring of new ones.

Downsides

Dice

You may find the experience of being a direct investor very stressful since you will have a lot of money in one investment, and if the company has problems, you will not have an easy way to cut your losses. Direct investment is an aggressive activity and is not good for all investors. However, if the company excels, you will make a load of profits due to the risks you took as an investor.

Conclusion

Direct investment requires much time and effort; it also has serious risks. However, if the company does well, there is the potential to make a fortune.

References

• "Understanding Wall Street"; Jeffrey B. Little and Lucien Rhodes, 2010
• Investorwords.com: Direct Investment