What I Need To Know About Stocks

What I Need To Know About Stocks – Everyone has heard about the stock market. You’ve seen headlines about the Dow and S&P or heard about the SnapChat and Facebook IPOs. Maybe his neighbor talked a lot about that action being “safe.” But since you probably didn’t have Intro to Home Finance in school along with our carpentry and home economics courses, you may not really understand how stock markets work.

When I was a kid, I thought you could buy shares of anything. I knew my dad owned shares of McDonald’s and other companies, and I thought that meant you could buy shares of any company or product you liked. “We should buy Mike ‘n Ikes stock.” It wasn’t until I was in high school that I started reading about economics and asking more questions about the stock market. After years of reading, investing and working on Wall Street; Here are the 10 things I think every adult needs to know about the stock market.

What I Need To Know About Stocks

I’m starting here because it was my first misconception about the stock market that I mentioned when I was a kid. There are many types of company ownership, but, very broadly, we can divide them into two groups: public companies and private companies.

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Most companies in the world are private companies. These are companies owned by an individual or a small group of individuals, and ownership does not change hands regularly. Private companies range from very large, like Mars Candy (maker of M&Ms) to your local dry cleaner. If you wanted to buy a private company, you would have to go directly to the current owners and make them an offer. If the company is not actively for sale, it would be difficult to do so, since private companies do not make their financial results public. I mean, have you ever asked your dry cleaner how much he made in 2016?

Alternatively, a public company has a portion of its property available for sale, in very small portions, to any individual, every day through an open exchange. These companies have gone through an IPO (Initial Public Offering, discussed below) to make a percentage of their company available for the “public” to purchase. To ensure that the owners of these small parts of the company can see what that small part is worth, public companies must present financial statements every 3 months, also known as quarterly, indicating what happened during the last 3 months and how it was for them. .

You can only buy stocks or shares of a public company because those are the only companies that have portions of their ownership available for sale to anyone, every day of the week. Some well-known public companies are Google, Apple, GE, Coca-Cola and McDonald’s.

A share is the money (capital) that a company obtains by selling shares it owns to the public. The total value of a stock is also known as market capitalization, or the price of a single stock multiplied by the total number of shares in existence. A single stock has millions of individual shares, which are small pieces of ownership in the corporation.

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For example, today Amazon shares are made up of 477 million shares, priced at $853.42 each. This means that the total value of the shares, or market capitalization, is $407 billion.

The stock market is the group of all listed companies in the world. As the world has become more interconnected, the global stock market has begun to move together more than ever. A crisis in China causes falls in Europe and the United States. The United Kingdom’s decision to leave the EU causes panic in the US markets. If you choose to own individual stocks, it’s quite possible that your holding could drop 20% because of something that happened on the other side of the world.

Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). When you see photos of swarms of people trading stocks and commodities, it’s probably the New York Stock Exchange. The NASDAQ was the first electronic exchange where investors could buy and sell stocks.

The New York Stock Exchange was founded in 1792 with 24 brokers (people who match buyers with sellers) and traders as a place to buy and sell stocks. Before this development, brokers met unofficially to trade stocks. The growth of the New York Stock Exchange and other exchanges allowed regulation to develop to protect consumers. With official stockbrokers, consumers could be sure they were buying legitimate shares of a company and at the right market price.

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Today, instead of thousands of men shouting at each other in a trading room, most stocks are traded electronically. In the split second you press the BUY button, computer systems match you with someone who presses the SELL button and the transaction is made at the current price of the stock.

Other than the first time companies offer shares of their stock, you don’t buy or sell shares from the actual company. Instead, you are transacting with someone else. Most large companies have stocks that trade almost constantly, meaning that when you want to buy or sell, there will probably be a seller or buyer that the exchange can contact you quickly.

An IPO, or initial public offering, is the first time a company offers ownership shares to the public through open exchanges. This happens when a large private company, for example Snap Inc (the company that owns SnapChat), has an owner who wants to sell part of his ownership of the company to raise cash.

There are two main reasons why companies go public. The first is that the company needs cash to grow and the second is that the owners want to diversify some of their own investments or have greater ability to sell in the future.

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Possibly the most common reason you see a company IPO is that they need capital to grow the business. They need a new manufacturing plant or to invest in new technology, and the owners are willing to sell some of their shares to the public to raise the cash the company needs.

In this case, although the owners are reducing the percentage of the business they own, they personally do not make much, if any, money from the IPO process.

Alternatively, if a private company is doing well and the owner believes that the public may be interested in buying part of the company, he could sell a part of the business to diversify his own investments. The owner has the option of offering the public only a portion of the ownership, say 45%, so that he can maintain full control no matter who comes out to buy his shares. This allows the owner to take some cash out of the business, places real, traceable value on their remaining ownership, and gives owners an avenue to sell more shares in the future.

Sometimes you see private companies go public when the founder of the company gets older and wants a clear way to transmit value to his children. The founder can transfer a percentage of the business he owns after the IPO to each child, and if he wants to sell, he can do so on the open market.

How To Pick Stocks

With the advent of the Internet and electronic trading, there are many options for people to buy stocks without having a human broker. Today, you need an online brokerage account set up to buy and sell individual stocks. You want to look for sites with low transaction fees if you are going to trade regularly (I don’t recommend this at all – see point 10 below). Sites like E-Trade, Fidelity, Vanguard, and many others offer online brokerage accounts.

When you go to buy or sell stocks, there are more options available than buy now and sell now. Below are some details about what your order type options mean when viewing your online account. A representative from your online brokerage can also help you with any questions.

The value of a stock, or its total market capitalization, is a representation of what investors believe is the company’s equity value. Equity is an accounting term for the value left to owners after subtracting liabilities (bills, debt) from assets (cash, property). The complicating factor is that the accounting version of equity does not take into account how well the company’s assets generate profits. A house valued at a million dollars does not generate profits at all, but a parking lot valued at a million dollars could generate profits in the millions. An accountant values ​​both as $1 million assets, but an investor might be willing to pay more than $1 million for the parking lot to benefit from the profits.

To compensate for this, investors use a series of earnings measures to decide how much to pay for a share of ownership in a company. This is mainly done with ratios, to facilitate the comparison of companies of different sizes and companies in different industries.

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There is a common assumption that the market is “efficient.” But the truth is that that is only true over time.

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