A stock is a share of ownership in a company. When you buy one, you own a piece of that business and get a claim on its earnings. The stock market works like any marketplace: prices rise when more people want to buy, fall when more want to sell. ETFs bundle hundreds of stocks together, like the S&P 500 ETF holding 500 large companies with about 11% average annual returns. Bonds are loans to governments or companies that pay you interest.
Chapters
The stock market.
It's a virtual marketplace where people buy and sell financial assets like ETFs, stocks, futures, options, and much more.
For now, we'll focus on stocks, which are pieces of ownership in a company where we can buy and sell.
Actually, now, what do I mean by buying and selling stocks?
Imagine the stock market as a big market where real people just like us trade stocks with each other. When someone wants to buy or sell a stock, they agree on how many shares they're trading at what price. Once they agree on those terms, the trade happens. Stock prices can go up or down based on how many people want to buy or sell them. It's like how prices change at a regular store depending on what people want to buy. This principle is also known as supply and demand. So, what is a stock? A stock is like a piece of a company that you can own. If you have shares in the company, you're a shareholder. Which means you're kind of like a partner in that company. The more shares you have, the more say you have in that company. But even if you only have a few shares, you're still a part of it. Not all companies have shares you can buy. Only public companies can sell shares that anyone can buy at the open market. And when a private company goes public for the first time, it means they're selling shares for people like us, and we can become part owners of that company. Why should a company go public? Let's say Susie has a killer lemonade stand, but because of how the business is run, she can only manage one stand successfully. Now let's say I go to Susie because I'm a savvy investor and decide to invest in her stand because her lemonade is that good. I give Susie $5,000 in order for Susie to go and buy more wood squeezers and all the necessary items for her to expand her operations. And Susie decides to give me 50% of all the earnings. Now Susie can open 3 to 4 more stands and make 3 to 4 more times the money. And me, I make 50% off those 3 to 4 stands as a shareholder in Susie Killer Lemonade Stand.
Back in the old days, buying and selling was complicated.
You had to call a stockbroker who worked in a loud room with other brokers just to make a trade for you. But now, thanks to computers and advancements, we can trade stocks online with just a few clicks. Every stock exchange, like the New York Stock Exchange or the NASDAQ has its own computer systems where trades happen. These exchanges have rules for companies that want to list their stocks, but it's not something we need to worry about. In the stock market, like every market, there are other sections and things you can buy. Instead of just apples, you can buy milk from the dairy section as well. The same thing applies here, as we have several different assets in the market. I won't go into too much detail on those besides two which I think are actually really valuable. First one is going to be an ETF. ETF, which is an exchange-traded fund. It's basically a basket of securities you can buy or sell through a brokerage firm at a stock exchange. What that basically means is instead of buying one share, you can buy a basket which contains 500 shares, for example, and that way you diversify your portfolio. It's like going to the marketplace and instead of buying just apples, you're buying apples, milk, cereal, meat, and that way you have a more balanced diet which doesn't contain only apples. The most common ETF you probably heard of is the S&P 500, which contains the 500 biggest companies in the US market. This basket or ETF contains stocks from different sectors such as cybersecurity, banks, insurances, mining stocks, and you name it. And from its inception, it's actually made over 11% annual return on average. It's often been used for people to park their money in an asset which is safer and it's considered more stable way of investing. The other one is a bond, which is basically a loan for a company or a government. Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you're basically giving the issuer a loan and they agree to pay you back plus an interest at a predetermined date. The interest you're getting is determined by the risk you're taking from the company or government. For example, if Apple were to issue bonds, they would pay a lower interest than a company who's just starting. So to sum things up, the stock market is like a big marketplace where people trade stocks, which are pieces of ownership in companies. And thanks to computers, it's easier than ever for anyone to buy and sell stocks online.
So to sum things up, the stock market is a virtual marketplace where people buy and sell financial assets such as stocks, ETFs, options, futures, and much more. And because of computers and today's technology, it's much more easier and accessible for us retails. Everyone can buy and sell stocks and own pieces of companies.
