- Personal Finance
A concise overview of the stock market
Frequently Asked Questions
Q1: So, where is the stock market -- how do I get there?
A: The market has shifted online and; most "trades" are processed by machines. It is more of a virtual marketplace. The biggest stock exchange by "market capitalization" is the New York Stock Exchange (NYSE), located on Wall Street.
Q2: What is the stock market?
It is the established system for buying and selling stock. It includes the stock exchanges -- places where brokers and market makers handle trading activity; and the computerized systems for executing trades.
Q3: What is a stock?
A: It's a share of ownership in a company. Percentage of ownership in a corporation is determined by dividing shares owned by overall shares. Apple Inc. has almost a billion shares outstanding, which are owned by different parties such as individual investors, employees, and financial institutions. The price of a share is over 500 dollars as I'm writing this. It would cost around a cool $500 billion to own the whole company. The cost of owning 1% of apple is in the area of $5 billion. Stocks and shares are terms used interchangeably.
Q4: My uncle owns 40,000 shares of stock and my brother owns 4,000 shares of stock. If my uncle has 10 times as much stock as my brother, why does his account have only $100,000, when my brother's account holds $50,000?
A: Remember from the previous question that shares are ownership interests in corporations. The price of a share varies by company. That makes sense, because all else equal, a share in a very profitable corporation is worth more than a share in a corporation that's facing bankruptcy ( which is the bad extreme ). In simple terms, just as you can't compare a super-car to a wagon or luxury car, you can't compare a share of ABC inc.'s stock to a share of DEF inc.'s stock; apples and oranges. So your uncle has ten times as many shares as your big brother -- let's hold on to that thought. The price of a corporation's shares is determined in the market. It's a balance between the (bid) price at which investors are willing to buy shares of a company's stock and the (ask) price at which shareholders of that company are willing to sell their shares. Shares are traded when the bid price meets the ask price. Let's say Apple announced an accounting scandal. Now shareholders are willing to accept less money for each share of stock, because the value is perceived to be lower. At the same time, potential buyers are spooked. So the bid and ask fall in concert (after really bad news) until they reach an equilibrium.
Sorry, about your question.. the number of "shares" that a given person owns is meaningless to the value of the assets. The total value of the shares depends on which company (or companies) your uncle holds shares in. So we can infer that the average share price in your uncle's account is $2.50 per share. We divide the total value by the number of shares to get that figure. By that same token, your brother owns shares that have an average price of $12.50 per share. Remember, it's the quality that matters. Quality shares have a higher price in the market.
Q5: How do I figure out which account has more money, without looking at the balances (follow-up of Q4)?
A: You have to ask your Uncle and Brother about that. If they tell you how many shares they own and in which companies, you can use stock quotes (price at which the stock last traded) to figure out how much worth of assets is in each account.
Q6: How do I figure out the price of a company's stock?
Each company has a symbol for its stock (also called a "ticker"). For example, the symbol for Microsoft stock is "MSFT." If you type MSFT into Google and click search, the price will instantly show in bold font. Try typing "GOOG" into Google and hitting search. You can probably see that the price of stock in one company is considerably higher than the price of shares in the other company. Many companies offer stock quotes information. Some companies offer delayed quotes (usually quotes from 15-20 minutes ago) while other companies offer quotes are in real time -- and companies may offer both delayed and real-time quotes. Typically it's free to check delayed quotes, but you must have an account with a stock brokerage or other financial information intermediary. to access real time quotes. Some sites offer free real time quotes. You have to check around.
Q7: What is a portfolio?
A: An investment portfolio encompasses all assets that an investor has available to invest at his disposal.
Q8: Why is the stock market important?
Generally speaking, it is a leading indicator of the state of the economy. Also, many working adults allocate a portion of each paycheck to "stocks", as part of their retirement planning. Symbolically, it is supposed to represent capitalism.
Q9: What is the Dow Jones Industrial Average?
It is one index of the tripartite indexes (Dow, S&P, and NASDAQ) that are commonly reported in the news. It consists of 30 well known American corporations, and it is used to gauge the performance of those stocks, on balance. Moreover it serves as an indicator of how other stocks are likely performing, so if the Dow is up and the NASDAQ and S&P 500 are also up, then most stocks are likely to be up for the day.
Q10: Does every large company have publicly traded stock?
No. Some large companies are held privately. Small businesses, partnerships, and other forms of business entities do not issue stock to the general public.
Corporations that are publicly traded must make regular filings with the Securities and Exchange Commission (SEC).