bellalee

Stocks

2 min read

key concepts

  • Stocks (= shares = equity): represent your degree of ownership in a company
    • Publicly traded
    • Privately traded
  • Underwriter: investment bank that helps other companies raise money
  • Secondary market (= public market): a public marketplace (stock exchange) where buyers and sellers meet to trade securities and assets.
  • SPAC: special purpose acquisition company used to raise money from investors, with the intent that the money will be used to acquire another company
  • Bid price: highest price a buyer will pay for shares at specific time
  • Ask price: lowest price seller will sell a share
  • Earnings per share (EPS): measures the amount of a firm’s profit per each outstanding share of common stock
  • Dividends: some companies distribute portion of earnings every 3 months
  • Direct stock purchase plan (DSPP): can purchase with little to no transaction costs
  • Dividend reinvestment plan (DRIP)
  • Brokerage account: account with investment company that you deposit money into to buy stock and other investments
    • Full-service
    • Discount
  • Primary stock exchanges
    • New York Stock Exchange (NYSE)
    • NASDAQ
  • Valuing stocks
    • Stock price
    • Market cap: the larger the company, the “safer” the stock
      • Large: $10B+
      • Medium: $2–10B
      • Small: < $2B
    • P/E ratio: price per share over earnings per share
      • Usually between 10 and 30
        • Value-oriented: low to buy shares at lower price
        • Growth-oriented: high for large future earnings
    • Dividend
      • Discounted dividend valuation model:
        • Let D = Dividend = dollar amount received annually for each share
        • Let DGR = Dividend Growth Rate = how quickly it has grown and will grow
        • Let RRR = Your Required Rate of Return = what you need to earn in order to invest in the stock
          • Depends on risk tolerance; 5–9%

notes

  • Creation
    • New business
    • Expansion with loans and investments
    • Approach underwriter for more money
    • Convert to corporation to create shares of ownership
    • Initial public offering (IPO) to raise money from investors
  • Purpose
    • To raise large amounts of money
  • After IPO, investors can buy and sell on secondary market
  • Investors appoint board of directors, who can hire and fire CEO
  • Ways to earn
    • Growth stocks: focus on stock price appreciation
    • Income stocks: large portion of earnings in dividends
    • Growth and income stocks

resources

  • Yahoo! Finance
  • Google Finance
  • Morningstar

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