We, at TPIN, have identified a problem: Not many people know the stock market and its ins and outs. We are, in that case, going to develop a course on the Stock Market. This course will cover many different areas of the stock market, from basic terms that you need to fully understand, all the way up to company analysis and analysis of its 10Ks and 10Qs. Since we are at the start of this course, we find it best to start with the basic terms that you’d need to have in order to proceed. This article will be the first of this series of articles regarding the stock market. The goal of this course is to prepare you to be able to invest in the stock market by yourself.
The article today is going to be answering 10 questions to start us off in the right direction. The questions will be:
· What is a Stock?
· What is the Stock Market?
· What is the Forex Market?
· How much do I have to invest in the stock market? How can I purchase stocks?
· Why should I invest in the Stock Market?
· Stocks VS Index Funds
· What are the important metrics you should look at when researching a stock?
· What is your best and worst scenario for when you buy a stock?
What is a Stock? - A Stock, or a Share, is, in reality, you are being part owner of a company. For example, if you decide to buy one share of Coca-Cola Stock (KO), you would be a very small owner of KO, but still an owner. The objective, when buying a stock, is to “buy low and sell high” in order to make profits, but there are many other approaches which can be used to make money. One of the best things about being an owner is that the company pays you a certain part of their profits per share that you have. Taking that KO example again, if you own one share of KO, at the end of each year you would get $1.64. It is important to bear in mind that not all companies pay dividends.
What is the Stock Market? – The Stock Market used to be the place you’d go to with your Share Certificate. You could meet with the other traders and sell them your shares. Nowadays you can do that without ever meeting the person that had your share before you bought it, nor the person that will keep it after you sell it. Before the time we are in now, but after the time when you actually had to go to the New York Stock Exchange (NYSE), or other stock exchanges, stocks were bought and sold with your broker over the phone. Thanks to technology, you and I can buy and sell stocks with our smartphone or our computer.
What is the Forex Market? – I would argue that you have likely experienced the action of the Forex Market in your life, perhaps without knowing it was the Forex Market. The Forex Market is the market that determines the prices of the world’s currencies, so, if you have already travelled from your country to a different one, you would have experienced the Forex Market in action. Unlike the Stock Market, the Forex Market is usually used for short term positions. It means that you will buy a position, a position is the amount of a security, commodity or currency which is owned by an individual, dealer, institution, or other fiscal entity, and 1 minute later you are selling out of that position. It doesn’t necessarily need to be one minute, sometimes it is a day or less, buy almost never traders go to sleep with trades active.
How much do I have to invest in the stock market? How do I buy shares? – That depends really on the number of shares you want to buy, really. Again, using that KO example, to buy one share today, you would have to invest around $45. But, say you want to buy one share of Amazon Stock, (AMZN), you would have to invest $3,200. My first investment, to give you an idea, was $400. I would, however, advise you to start with something around $100 because you are likely to lose it. This $100 would be for you to understand the ins and outs of the market before you put in the big money. I did say it depends, but it is important to realize that it is extremely unlikely that you become rich buying one share of any stock. It can happen, but it is next to impossible. To buy shares, as seen before, used to involve a trip to the Stock Exchange so you could trade with the other shareholders, now you can use your phone. The stockbrokers I would recommend you to use firstly would be eToro if you live outside the US and Robin Hood if you live in the US. I have never used any of those platforms because the one I use has served me just fine, but those platforms charge you 0 commissions nor fees, so, if you are a beginner in the Stock Market, it is important to be charged the minimum possible. I do not use any of those simply because, before this wave of platforms waving their commissions and fees away, I was already with DE GIRO and their service was very good for my needs. Regardless of my recommendation, you should always research stockbrokers to understand if they are legit and serve the needs you need to be served.
Why should I invest in the Stock Market? – If you think the Stock Market is not for you, then maybe you are right. The Stock Market is not a “get rich quick scheme”. There are some cases, yes, but most people lose money on the Stock Market. The Stock Market is not for everyone, it really hurts to see your investments go down in value and the money you worked hard to earn be shortened. But, the reason why you should invest is because it might bring a lot of value to your life, both monetarily and through a feeling of realization, when you get the confirmation that you knew all along, that your investment was not worth what you paid for but a higher amount. A lot of people make a lot of money in the Stock Market, but you have to have the right head for it.
Stocks VS Index Funds – Index Funds are a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover. These funds follow their benchmark index regardless of the state of the markets. So, to sum it all up, it is a group of stocks. It requires less research than to pick stocks, but stock picking can be more profitable. You have to work harder to choose each stock in its generality, but the profits are higher.
What are the important metrics you should look at when researching a stock? – Before you purchase any stock, you always have to check their statistics and financial reports. You can access it all in the company’s investor relations page on their website. Just Google “Investor Relations KO” and you will get the investor relations page for the KO Stock. Important and simple metrics would be to check their profits, losses, and revenue. I will do a full article about this, so I do not want to go on to deep with this.
What is your best- and worst-case scenario for when you buy a stock? – The best-case scenario when you buy a stock is, really to have it go infinite, the stock you buy, in its best case scenario would be priced at the highest number you can possibly think about. The worst-case scenario, and important to remember, is that all companies can go bankrupt, meaning that you lose 100% of your investment in that in that company’s stock.
Taxes – Taxes depend from country to country, but the US charges 15% on the profits that you have yearly if you have owned that stock for more than a year. If you own a stock for less than a year you can get charged 20% on the profits. It is also very important to research this before you get in or out of any stock, so you can learn how much really will go to your pockets. For other countries, and even for the US, you should do your own research on the government's websites.