360 Investing 101 Course – Stock Market Basics
Before you make your first trade online, we will discuss the basics of investing, here are some of the things you need to know:
A share of public company stock is basically owning a portion of a publicly traded company. There is also the ability to buy shares in private companies, but we will not discuss that on this particular website. Shareholders are people who own shares of a publicly traded company and are essentially investing in the future growth of the company as long as they own the shares. Often times shares are not only held by the public but also management of the company, the founders, big banks, governments, etc.
Share prices fluctuate on a daily basis due to a variety of reasons:
• Performance of the company – each quarter management reports earnings and these earnings are gauged against investor expectations. If management beats these expectations, the price usually rises, if not, the price usually drops. For some companies, investors look at more than just earnings, sometimes they look at asset value, sometimes debt, sometimes revenues, and sometimes other factors which we’ll discuss further.
• Investor’s attitudes – sometimes good companies perform poorly because investor’s attitudes are generally negative and drag down the broader market.
• Future growth prospects – often times the growth prospects of a company are built into the company’s stock price; without future growth potential, investors do not see stock appreciation and will dump the stock
Public companies can return money to shareholders in a variety of ways other than stock appreciation itself. When businesses profit, management can decide to return money to its shareholders through both dividends and stock buybacks. Stocks that issue frequent dividends, like Microsoft or Intel are income stocks and the companies like Apple and Google, which continually re-invest in the future growth of the company are called growth stocks.
Investors trade stocks through various exchanges and are usually charged a commission to do so. You can learn more about online trading and how commissions work at our 360 Online Trading site.
Some examples of major stock exchanges are:
• Toronto Stock Exchange
• New York Stock Exchange
• Nasdaq Stock Exchange
• OTC – Over-the-counter Stock Exchange