Capital appreciation refers to the increase in the market value of an investment due to rising market price. If price gains push up the price of your stock or the market value of your property or other asset, that's capital appreciation. It is a major way to profit from your investment in capital assets. Many investments are in fact made with the expectation of capital appreciation, which then yields capital gain. A capital gain arises when an investment which has enjoyed capital appreciation is sold off. That profit margin between the original purchase price and the higher sale price is called a capital gain. In some economies, that gain is taxed by the government as a capital gains tax. Capital gains on stocks are not currently subject to any capital gains tax in Nigeria. That simply means that any gains you make on your stocks due to capital appreciation are not subject to tax.
For stock investors, dividend payment, which includes bonus shares, is the other key pillar of reward. So, shareholders can profit from capital appreciation or from dividend payments. Price appreciation may be unique to a particular stock or may reflect a general trend of the market. When it is relatively market-wide and sustained, we speak of a bull run or bullish market. In a bullish market, share owners of many 'solid' stocks enjoy a lot of capital apprecation. That is when the excitement of the stock market comes to the force.
It must be noted that capital appreciation is not firmly in the pocket of the investor when he has not sold the asset. Technically, its is refered to as an unrealsied gain at that stage. It can fizzle away if the price trend quickly reverses and the investor is unable to sell off until the price declines substantially. It's only if a sale is made that the gain becomes realised. Shrewd investors aim at selling off the asset at or close to the market high (when an appreciation run is beginning to lose steam). They also target on buying back when a price fall (depreciation) is near its bottom. That way, the investor can optimise on returns.
The challenge, however, is in being able to read the market to know the ideal point to take any of these investment actions. Errors of judgment are always very possible, meaning you need to really put on your thinking cap, which will be more fruitful if you are equipped with relevant facts. The bottom-line: as an investor, always seek to have all the information you can - about the market and about the specific stock(s) you have interest in. Don't throw in money blindly. A good stockbroker can also be helpful. Our related online article Be Smart and Scale Out When the Market is Up will provide you more tips on playing a rising market while How To Find A Good Stockbroker And Get The Best Results gives clues you can use.
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