Most large public companies have a long-term dividend strategy. The shareholders therefore sometimes receive a distribution even after poor financial years. As a result, as a share owner, you can earn money even if the price falls.
Certificates on Shares
There are also various forms of investment that allow you to participate indirectly in the price development of shares. With certificates, for example, you can bet on both rising and falling price trends. Those issued by banks debentures may have equities as an underlying, among other things.
Issuers have countless options for structuring their certificates. A type popular with investors are the so-called discount certificates. Here, the purchaser receives a rebate (discount) compared to the direct purchase of the share. The certificate is therefore cheaper than the share, but participates to the same extent in the increase in value. This investment can therefore still be profitable for investors even if the underlying asset, i.e. the share, itself loses value.
Of course, this advantage does not come for free. Discount certificates often have caps. Up to these upper price limits, there is a yield advantage, but after that it turns into a yield disadvantage compared to the underlying. Another disadvantage of certificates is that investors do not become co-owners of the stock corporation, but are only creditors of the issuer. On the one hand, this means that they are not entitled to dividends and, on the other hand, that there is a risk of total loss if the issuer defaults.
warrants on stocks
Another way to make a profit even when stock prices are falling is to buy a put option. Buyers of such warrants acquire the right, but not the obligation, to sell a specified amount of a specified underlying asset – such as stocks – at a predetermined price to the put seller within a specified time frame (American style) or at a specified point in time (European style). to sell. If the stock price falls below this strike price, the difference is the put option holder’s profit.
But be careful: Option certificates (also called warrants) are only suitable for investors who are very willing to take risks. They have a leverage effect, which means that the owner participates above average in fluctuations in the value of the underlying asset. This leverage works in both directions and can also result in losses for the investor in the event of an unfavorable development.
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