GET YOUR KNOWLEDGE!

A stock is a type of investment, it is a security that represents ownership in that company or corporation. This means that as a shareholder you are entitled to any profits earned by the corporation proportionate to the amount of stock you own if the value of the stock increases. However, this does mean that if the stock devalues then the money invested decreases proportionately as well.

What is a Share?

Simply put, a share is the number of stocks a shareholder owns of a certain company or corporation. The more shares of stock you own, the more profit you stand to gain if the company does well, and in turn, the more money you stand to lose if it does poorly.

What is the Stock Market?

Commonly understood, the Stock Market is where the buying and selling of stocks takes place; however, this isn’t fully accurate. The “Stock Market” is more of a general term that encompasses the many Stock Exchanges where the actual buying and selling of stocks takes place. So, when someone says they bought some stocks on the stock market it means they bought it from a Stock Exchange that holds the stock, like the NYSE, and is usually done through a stockbroker and/or platforms like Robinhood and E-Trade

What are the different types of Exchanges?

There are several different Stock Exchanges in the US, 13 in fact, but we will only talk about the 2 that are most widely known for now.

New York Stock Exchange
- The NYSE, (New York Stock Exchange), is the largest equity-based Exchange in the world and is in, you guessed it, New York. These equity-based Exchanges are a way for companies to gain capital through investors and investors to own a piece of the company. However not every company can be listed here as there are requirements that must be met in order to be listed on the NYSE.
NASDAQ
- The National Association of Securities Dealers Automated Quotations known widely as NASDAQ is a unique Exchange as it doesn’t have a physical trading floor like the NYSE and operates completely online. Even though it doesn’t have a physical trading floor this is actually a good thing. Having no physical location lowers the price of transactions and increases the speed of completion. This has allowed NASDAQ to become one of the top Exchanges. The NASDAQ is largely dominated by the technology sector.

What are the different types of Stocks?

There are two main types of stocks that new investors will come across and it is important to know the difference between the two. After that there are several different ways to categorize the stock itself which is important when it comes to diversifying your portfolio and how you build it. So, let’s start with the 2 types before we get into the long list of categories.

Common and Preferred Stock.

Common stock is what most people are buying, whether they know it or not. When you are buying a stock on Robinhood, that’s a common stock. There is nothing special, it gives you partial ownership, some voting rights, profits if the company does well, or losses if the company fails, it has everything any investor wants; except the losses when the company fails, nobody wants that.

Preferred Stocks work a little bit differently than their common counterpart. To start, a company doesn’t need to have preferred stocks, in fact most of them only offer common stocks, but if they do, they will typically offer both common and preferred. The difference is noted by a Class A or B. For example, Fox has both common and preferred stock the common stock is listed as Fox Corp Class B while the preferred is Fox Corp Class A.

Now let’s get on to the main differences between the two.

Preferred stocks get paid dividends. They get paid at a higher rate, are very predictable, and get paid before the common stock shareholders do for gains or losses. If there is any money left to pay them at all.
If a company were to fail, preferred stock shareholders are more likely to reclaim some of their investment while common stock shareholders would lose everything.
Preferred stocks come with no voting rights in the company unlike common stocks
Preferred stocks have less volatility. Not a whole lot of movement up or down.

In short, preferred stocks will give you guaranteed and predictable income, and if the company falters you will likely recoup some of your investment, since preferred stock owners get paid out first.

Different stock categories.

Now that you know the 2 kinds of stocks, we can now see how they are further categorized. It is also important to note that some stocks can fall into multiple categories.

Large/Mid/Small-Cap stocks

When discussing a Large or Mid-cap stock it is in reference to its market capitalization (hyperlink to term definition). There isn’t a definite and distinct line that separates the classifications, but the general accepted notion is that Small-cap stocks are companies that have a market capitalization of $250 million to $2 billion. Mid-cap stocks range from $2 billion to $10 billion. While Large-cap stocks have a market capitalization of $10 billion or more.

Large-cap stocks are companies who are well established and are household names like Microsoft for example. These companies are generally safer to invest in, due to their incumbents in their respectable industry. Mid-cap stocks could also be household names, but they may not be as widespread nationally or globally, however they still have potential for growth like with Small-cap companies. There is a much higher potential for gains than in Large-cap companies, but with higher potential gains comes greater risk of losses.

Domestic and International Stocks

Stocks can also be categorized by where the company is located.

A company located in the same country you live in is considered a Domestic stock. Companies which have their headquarters in a different country are considered International stock. This is important to know if you are trying to purchase International stock, which may require utilizing a stock exchange associated with the same country or region the company is based in.

Growth Stocks

Growth stocks are companies that are seeing their sales and profits rise quickly. This may be due to ownership of a patent which is giving them an edge in the general market or to a rise in popularity. Growth stocks also don’t pay dividends as the profit they earn is being reinvested into the company to further its growth. By doing so, the company may further its reach, R&D in new technology, or create a better product in order to further its growth for itself and its shareholders. The upside to all this growth is that as a shareholder you may see fantastic returns on your investment, however if the growth ends up stalling you may soon find loses. Due to the high potential of gain as well as losses, these companies tend to be more on the riskier side.

New or small-cap companies are considered as growth stocks. They are just entering into their industry and as such have plenty of room to grow while they establish themselves.

Value Stocks

Contrary to growth stocks, value stocks tend to be more well-established companies that trade at lower prices than what the company’s performance report may otherwise indicate. These stocks are easier to buy and typically pay dividends because they aren’t reinvesting all their profits into itself. They have already grown and there isn’t a need for heavy reinvestment.

IPO Stocks

Initial Public Offering (IPO) stocks are stocks of companies that have recently gone or are in process of being publicly traded companies. These stocks are quick to come under scrutiny and can suffer or benefit greatly from public perception. As a result, these stocks are very volatile. A company can maintain its IPO status for about a year after going public.

Dividends (Income) Stocks

Dividend stocks, also known as Income stocks, make regular dividend payments to their shareholders. These stocks won’t see as much growth as non-dividend stocks but are quite predictable and rather stable. This doesn’t mean they are better or worse than those that don’t, but they can provide reliable income and are sought after more by those who are close to or are already retired.

Cyclical Stocks

Most consumer discretionary companies have stocks that are cyclical. This means that as the economy is doing well then, these stocks are typically doing well and when the economy is poor these stocks struggle. This is because good economy means more people have money to spend on these products or services like buying new cars or traveling. These stocks could also be subject to other factors that impact its performance like shortages in materials. This would have an impact on their production and product cost which in turn may lower profits and customer confidence, negatively impacting the business and its value.

Safe Stocks

Safe stocks are as the name implies, safe. They are well established companies and have low volatility no matter the current climate of the economy. They often pay dividends to their shareholders which could help offset losses a portfolio may suffer during tough economic times.

Blue Chip Stocks

Blue Chip stocks are companies that are considered to be the cream of the crop. These are companies with great reputation, are well-established, and financially sound and typically are the dominate company in its sector. These are large-cap companies that pay stable and/or rising dividends to its shareholders. They are very low risk that are very popular among investors.

Penny Stocks

Penny stocks are stocks which are typically cost under $1 but some consider stocks under $5 to be penny stocks as well. These stocks have companies that are new and have extremely speculative business models which have not been proven or may even be likely to fail. Although with great risk comes great reward, and an investment into a penny stock company that finds itself successful and take off could return incredible gains to those who had invested.

As with any stock, but especially Penny stocks, research into the company is necessary as there is plenty of danger and risk that comes with investing in them.

Stock options

A stock option is contract between an investor and a seller known as an option writer. Purchasing a stock option gives the investor the right to buy or sell the stocks at the agreed upon date and price, known as the strike price, but not the obligation to do so.

An easy way to think, and somewhat oversimplified, of stock options is that you the investor are betting on whether or not the stock will rise or fall to a certain amount by a given date. If you are correct you stand to make some money, if not, you lose the money.

There are 2 types of options that can be made. Which are well knows as a Call or a Put option. Options mean you don’t have to own the stock to trade.
A contract is an agreement to rent/borrow shares of a company at the certain cost/fee from a seller, with the understanding that the shares will be returned to the seller by the expiration of the contract date and/or exercised prior to the expiration date.

A Call option is where an investor believes that the given stock will rise to or beyond a certain price by a given date. They will buy what’s known as contracts to purchase the stock at the agreed upon strike price if the stock indeed rises to it or above. For example, it’s January and Company A’s stock is at $20. Tom thinks that by December that stock will be above $40 so Tom buys a Call contract of 100 shares at $40 for a fee the seller charges. Tom only pays for the fees charged by the seller and not the full cost of the stock. December comes around and that stock is now at $60, Tom can now exercise his contract, which gives Tom the opportunity to sell the 100 shares at the $60 price and pay back the seller $20 per share as agreed in the contract. Tom profits $40 per share minus the initial fees paid to the seller for the contract. If the contract is not exercised or the price of the stock does not raise by the agreed upon time, the contract is considered expired, and Tom will lose the fees initially paid to the seller for the contracts.

A Put option works similarly to a call option but in reverse. You are kind of assuming that a stock will drop in price. Let’s say Tom buys a put contract of 100 shares of Company B’s stock which is at $100, for a fee the seller charges. Tom thinks that in the next 2 months the market will take a turn for the worse and Company B may be hit hard. Turns out Tom was right, and the stock of the company plummeted to $50 a share within those 2 months. The put option Tom bought will give him the right to sell his shares at the $100 price. Tom will profit the cost difference minus the fees paid to the seller for the contract

Futures

A Future contract is similar to stock options. The contract is between 2 parties which agree to buy and/or sell securities at a specific price and date. The main differences between a Future options and Call or Put options is that in a Futures option contract both parties are obligated to buy or sell what was agreed upon.

An easy way to understand this is to think in terms of commodities like corn or wheat. Let’s say wheat is $30 a bushel right now, but farmer John’s crop won’t be ready for another 3 months. Since he is worried that by the time harvest comes the price will drop, he makes a contract with a trader to have his wheat bought at $30 a bushel 3 months from now. The trader who is fearful the cost of wheat may go up accepts the terms of this deal. After 3 months the time has come to fulfill the contract. If the price per bushel went down to $25 then farmer John made an extra $5 per bushel he would have otherwise lost. Conversely, if the price rose to $40 a bushel, then he missed out on making an extra $10 per bushel and the trader came out ahead making some money instead.

Another way to make use of a futures, let’s say you know Company X is just a few months away from some major success and publicity that will cause its stock to skyrocket. The problem is you don’t have the assets available to invest and won’t have them till a month after. You could buy futures of the company at the current price to be bought 4 months from now when you finally have the money. If you made the right call, and the stock price goes up, you tend to make a profit. If the price has gone down, you are still obligated to pay the price agreed upon taking on the loss of the cost difference.
Futures are all about trying to predict the market and where it will be but can end up being extremely costly if the predictions you’ve made are wrong.

Warrants

Stock warrants work in the same manner as a stock option. The owner of the warrant gives them the right to buy stock at a certain price and date. The main difference is that the warrant comes directly from the company whereas the option is a deal between two investors. There is also no penalty for choosing not to exercise them.

Bonds

Bonds is debt that is purchased from a company or government that will be paid back with interest. The interest will be paid as dividends annually until the length of the bond is completed, which is called maturity, at which point the initial amount paid will be returned.
While bonds don’t have the potential for massive payouts like common stocks, they do return money annually and receive preferential treatment like a preferred stock would. They get paid first and they would get paid before any stockholder, should the company falter and bankrupt.
Bonds are generally a safe bet, but they usually require a substantial amount of money in order to invest in. What’s more is that bonds aren’t traded in normal exchanges, they are mainly sold over the counter, (OTC). As such most individual investors typically don’t own any bonds.

What is an ETF?

Exchange-traded fund, (ETF), is an assortment of securities that can be bought and sold like a regular stock. These securities can be stocks, bond, commodities, indexes, or any other type of investment. Every ETF is different, some utilize vastly different strategies and can focus on 1 sector or among multiple. It is important to research which type of ETF is right for you.

Different ETF strategy types.

Equity ETFs
- These are your basic type of ETF. They range from tracking large to small companies, specific sectors, even including companies and sectors in a different country, to just a single index. ETFs that are considered to be actively managed, would have a tracking error under 2%.
Fixed-Income ETFs
- Fixed-Income or bond ETFs are generated income for the investor until it’s maturity date. These are considerably safe investments with low risk, however, the lower the risk the lower the returns. Still, it is a wise idea to invest in these as they can reduce a portfolio’s volatility while generating cash.
Commodity ETFs
- There are 3 different types of Commodity ETFs, these ETFs are made up of futures or other assets backed contracts which monitor the performance of a group or singular commodity. Many of these ETF use leverage through the purchase of derivative contracts and investors don’t typically own the physical asset they are invest in.
  - Physical commodity ETF
    - As implied by the name, someone invested into this ETF would own the underlying commodity. However, depending on what it is invested in it may be subject to tax. Gold for example could be taxed up to 25%, as such, these are better for long term investors looking to diversify their portfolio.
  - Equity-based commodity
    - Unlike the previous ETF, this ETF style invests in the companies that produces, transport, and store the commodity. These also offer better taxation rates and more favorable to short-term investors looking to gain exposure to the market.
  - Futures-based commodity
    - This ETF model exposes its investors to commodities by use of futures-base contracts. This model can be highly uncertain and plays off the fears of the general market. If guessed right, you come up, if guessed wrong, you lose out.
Currency ETFs
- These ETFs invest in other currency to help hedge against the devaluation of their country’s currency. ETFs of this type will invest in another or multiple country’s currency.
Inverse ETFs
- Inverse ETFs are a short-term trading strategy to help hedge against a sudden turn in the market, index, or sector. These ETFs achieve this by investing in multiple derivative contracts like futures. This is similar to short selling in which profit is made if there is a decline in the market but differs in that it doesn’t borrow from other investors. Instead, it uses a margin account which requires fees and interest payments. While Inverse ETFs can be a great way to earn extra money if you are able to predict when there will be a fall, it can lead to major losses if you are wrong akin to short-selling stock. As such this style of ETF should be left to experienced investors.
Real Estate ETFs
- Many of you may have heard what a real estate investment trust (REIT) is on the radio, well this an ETF that monitors that index. These are quite attractive funds to invest in because 90% of their taxable income must be paid to the investors making this an excellent source of income especially so when the interest rates are low.
Factor ETFs
- Factor ETFs are fairly new, they impose a model that is more biased towards a certain aspect than a general sense. The theory behind this is that the general model isn’t working like it had before and by tailoring or ’tilting’ the ETF in a more specific direction will generate greater returns to the investors.
Sustainable ETFs
- Simply enough these are ETFs that focus on green, renewable energy.
International ETFs
- These ETFs, as the name suggests, track foreign traded funds that specialized in foreign securities. This is another ETF are better left to experienced traders who are knowledgeable about geographical and political matters but could none-the-less be a great way to diversify your portfolio.
Leveraged ETFs
- A leveraged ETF is designed to give investors multiples in return compared to the rise of the index it is tracking. This is done by using both debt and shareholder equity to amplify returns. These ETFs use options and futures contracts the achieve this result.
- In a regular ETF, if the tracked index increases by 1% then the ETF does the same in turn. A double or triple leveraged ETF would seek a 2% or 3% gain by leveraging the debt using the methods mentioned. This could be proven to be very profitable but also very costly. If the index were to fall instead by 2% you would have a loss of 4% to 6%. The index would then need to rise about 5% in order for you to recoup your losses. As you can see these ETFs can be very risky and not recommended for beginning investors.
Multi-Asset ETFs
- As the name implies, with this ETF you are investing in multiple assets, sectors, and markets, at one time. These are low risk and volatility and a great for diversifying your portfolio.

What is an ETN?

Exchange-traded notes (ETNs) are an unsecured debt security that track an underlying index. They are similar to bonds in that at maturity will pay back the principle plus extra based upon the performance of the underlying index. However, they fluctuate like a regular stock, and unlike a bond, they don’t have regular interest payments. As such, ETN rely on the index to be doing well at the time of sell in order to cover the fees involved in its transaction.

What are different investment strategies?

We won’t be covering all the different strategies to investing, instead we give you the general golden rule when starting to invest and trade.

Buy low, Sell high.

That’s it. Now I know that may seem like a bit of an oversimplification but that is the general rule that should be followed if you want your portfolio to see profits in the stock market.

Now there are a few ways to achieve this, but it does take some time and research, information is key and the more you have of it the better decisions you will make. So, research the company, use the MarketDraft simulator, listen to the news, be aware of upcoming trends, take note of the current political climate and issues. Always get all the necessary insight and research in the company before purchasing stock.

Can I get rich or go broke in the stock market?

Yes, and Yes. You can easily go broke or get rich in the stock market. Either could happen depending on multiple and limitless causes.

Proper research and planning will always decrease some of the risk, but nothing can be 100% guaranteed. Trade and invest diligently.

What is a Shareholder?

A Shareholder is a person who owns stock of a given company. This doesn’t mean you wield power in the company, but it does mean that if the company does well and its stock price increases, the amount of money you earned increases proportionately to the number of shares you own of that stock.

For example: You own 3 shares of Apple stock. When you bought the shares initially, they were worth $100 each. After a month the stock increased to $150 each which means your investment of $300 earned you an extra $150 profit if you were to sell them right then. The same also works in reverse should the stock loose value.

What are Stockbrokers?

A Stockbroker, (aka, a financial advisor, investment analyst, securities broker, wealth manager, etc.), is a professional trader that buys and sells stocks on behalf of their clients. These brokers are usually work with individual clients and/or part of a brokerage firm and are paid via commission.

What is a Portfolio?

A stock portfolio is person’s collection of stocks they own. It is generally a good idea to have diversity within your portfolio. This is achieved by having different stocks apart of different sectors as well as different types of stocks. This strategy helps hedge your portfolio against down trends in certain areas of the economy. For instances if you had invested all your money into stock only in the technology manufacturing but then manufacturing stops due to shortage, this will cause most of the companies in those sectors to do poorly and their stocks will drop and in turn your portfolio value will decrease.

Diversifying your portfolio will help to avert some of the risk but is not fully guaranteed.

Contrary to diversification strategy, investing heavily into a certain company or industry has also had its success cases. Including a larger profit margin compared to a diversified portfolio strategy.

There is no 1 solution answer to investing.

What is the Dow?

The Dow Jones Industrial Average, commonly referred to as “the Dow” is an index created by Charles Dow, Edward Jones, and Charles Bergstresser in 1896. The index is comprised of 30 blue-chip companies, and it is meant to be a means of measurement of how well the economy is doing in general.

What is the S&P500?

Like the Dow, The Standard & Poor’s (S&P) is an index that measures the general health of the economy in the United States. The 500 in S&P500 represents the 500 stocks in the index. The S&P500 is considered to be an effective representation of the economic health of the country due to the inclusion of the 500 companies it tracks, as opposed to just 30 in the Dow, that span all sectors of the economy.

What is the NASDAQ Composite?

Like the others mentioned before the NASDAQ Composite, usually referred to as just NASDAQ, is another index that measures all the securities traded on NASDAQ. The NASDAQ is very technology heavy with almost 50% of its stocks being in that sector.

In the end, what all these convey is just the general health of the economy and markets and whenever the stock market is mentioned on the news these 3 indexes are usually reported on together to give you an idea of what is going on. The Dow is up? Big industry is doing well. S&P500 up? Economy in general doing well. NASDAQ up? Tech companies are doing well. Each have their purpose and are very valuable tools of information at your disposal.

What is Day Trading?

Day trading is the practice of buying and selling securities(stocks), for a profit within the same day, hence day trading. This is done by employing several different strategies while investing a great deal of time into market research and being up to date on the company and market news.

Day trading requires quite a bit of capital to pull off and many would argue that the capital and risk needed to make day trading successful isn’t worth it. Any number of things could go wrong or just one bad decision could see all your funds gone in just a few hours even minutes. Still people do it and there are still plenty of successful day traders who have struck it rich, but it didn’t come easy. They studied, made the call, took the risk, and watch their hard work bear fruit.

Different Day Trading Strategies.

Let’s briefly go over a few day trading strategies that are beginner friendly.

Trend Trading
- With this strategy you would follow a stock that has a medium amount of volatility. When you see the price and trading volume increase, you buy. In turn, when you see the price start to decrease, and you believe that it will continue, you sell. As the name implies your just following and trying to predict to a degree in which the stock is trading.
Reversal/Contrarian Trading
- In this strategy you are trying to take the opposite position in which trend is heading. So, if the stock is falling you will end up buying the stock at what you think the low point is before it starts to reverse. Likewise, if the stock is rising, you will end up short-selling in the anticipation that the stock will soon fall. This more of an advanced strategy than the others because it does involve short-selling and the risk and loss involved with that can be quite high if you don’t do you’re research.
Scalping
- This is a very popular strategy employed by most beginning day traders. Scalping is low-risk, low-reward method of trading in which investors will buy a large quantity of shares of a particular stock and sell it the moment it becomes profitable. Usually, these action of buying and selling the stock will happen within minutes of each other, this is a very fast-paced method which requires constant monitoring. Investors also set a stop loss and will close their position if the stock starts to fall too much from their entry point.
News Trading
- This strategy relies solely on watching the news and keeping up with current event. Knowledge is power here and the more you know, and the sooner you know it, the better decisions and trades you will make. So, watch the news, read the news, look for financial reports all of these are key when it comes to the strategy. What this all means is that if you hear good news or know good news is soon to come out you would buy shares of that stock and ride it until it starts to reverse. Alternatively, if you hear bad or know bad news is coming you would sell what you have or even short-sell to make a profit that way. Again, be wary of short-selling as your losses could potentially be unlimited.

What is Short Selling?

Shot selling is, although risky, way of making money off declining stock prices. It’s basically a bet against a stock or company. This is done by borrowing the amount of shares you wish to sell from another investor or stock inventory with the contractual promise of paying back.

Let’s say John heard on the news that Company X had some terrible news recently come out. John figures that because of this the stock will fall so he contacts his broker and tell him he wants to short 100 shares of Company X. His broker will then find the shares to borrow and sell them. Let’s also say the shares are worth $1,000 apiece. After a few weeks the shares did indeed drop to $500, John would then call his broker and ask him to cover his short, which means his broker will buy back the stocks sold at $500 a share and return them to their owner. In this scenario John made $50,000 short-selling the stock.

However, short selling can be very risky, let’s say that John was wrong, and the price instead increased to $1,500 a share. John would then have to buy back the shares at the higher price costing him $50,000.

Short selling is an advanced trading strategy that should be left to people with experience in the marketplace because the risk of losing money is theoretically unlimited. When buying a stock, the amount you can lose is only as much as you paid for it but the amount of profit to be gained can rise without limit. Whereas in short selling, the amount of profit can only be as high as what you sold it for but if it continues to increase then the amount lost will also relatively increase and could cost a fortune,

A recent example of short selling gone horribly bad could be seen with the stock of GameStop. A hedge fund had seen that the price of the stock was overvalued and believed it would correct soon so they short sold millions of shares. An army of users on reddit saw that short sell and decided to buy more than what was sold, and continued to buy more, driving the price sky high. The hedge fund ended up losing billions of dollars on this short sell as at ran out of time and had to buy the stock back to return to its clients at an incredible mark up.

What is a Bull Market?

A Bull market is a period of time where the price of stocks and other assets continue to rise. A widely accepted definition of a Bull market is a period in time when the market rises at least 20% after a decline of 20% and before being followed by another decline of 20%. This means that the period between the two declines in the market would be considered a Bull market, or rather a Bull run. In a real basic sense, this is great for investors because it would mean that there is always money to be made no matter what price you buy in at because the economy is growing, and the market will grow in turn. This isn’t always true though; some sectors of the market just may be doing very well and outperforming the others struggle so don’t think that just because you’ve thrown money at any stock you see that it will produce profits for you. Be diligent, research, follow the news, and invest wisely. Investing a Bull market is a great thing and can earn you a lot of profits so the sooner you can recognize the Bull coming there is a lot of money to be made.

What is a Bear Market?

A Bear market is like a Bull market but obviously instead of increasing it decreases. Based off what we know about a Bull market, a Bear market is entered when there is a decrease of 20% or more from the previous high.

Bear markets shouldn’t be feared however, yes, your investments may not be doing well, and you may be losing some money if you had bought in at the height of the Bull, but all is not lost. This is actually a great time for many investors to take advantage of lower prices and buy more share to reap more profits when the Bull finally comes back around. A key viewpoint to take away from this is to look at Bear markets as potential gains rather than potential losses. Remember, buy low, sell high.

It should be noted that individual stocks can enter a Bull or Bear market regardless of what the market is doing as a whole.

If you are looking to reduce the impact that a Bear market has on your portfolio then it is important to diversify it. Not all sectors of the economy will be equally impacted, and some may, but not likely, do well. By having a diverse portfolio, you will be able to weather the downturn and be able to make trades and buy more stocks and shares at a lower price to see greater gains when the Bull market returns.

What does IPO mean?

An Initial Public Offering (IPO) is when a privately-owned company goes public y selling common shares to the public, attracting new investors, and raising more capital.

There are many reasons and steps to get to an IPO and they will be covered later.

What are Dividends?

A dividend is the profit the company makes and is paid to its shareholders. These payments are made quarterly and are usually paid in cash but could also take others forms like additional shares in the company.

Not all stocks pay dividends, in fact most don’t, and the profits made by the company are re-invested into it or to help fund R&D or other projects.

Important Terminology

Market Capitalization
- Market Capitalization is the total dollar market value of a company’s shares of stock. This is done by multiplying the total number of shares by how much each share would be sold by. This metric is used to determine the size and worth of the company. The larger the market cap, the more it is worth.
Symbol (Ticker)
- A stock ticker or ticker symbol is an abbreviation used to quickly identify publicly traded companies on the stock market. They are also used to help differentiate between companies with similar names. They also make it possible to help investors distinguish between multiple classes of stock that a single company may have to offer (common or preferred).
Capital Gains
- Capital gains are the increase in capital assets, in reference to stock this means a monetary gain. These gains only happen when the investor sells his stock at a higher price than their entry point. Upon selling stock an investor ‘realizes’ his gains or losses if the stock happened to fall instead. After capital gains have been realized, this earned money is now subject to a capital tax. Only gains that have been realized are subject to the capital tax while unrealized gains/losses are referred to as paper gains/losses.
Blend Fund
- Blend funds are a hybrid mutual fund that includes a mixture of value and growth stocks. They offer greater diversification and are a popular investment.
Bullish and Bearish
- These terms can be used individually when talking about stocks or when take a particular action or stance. You could be bullish or expect a stock to be bullish. The same can be said about being bearish.
Hold
- Holding is the act of holding shares, generally meaning that you won’t sell. Commonly when other say to hold it is due to uncertainty in the market. It isn’t clear whether or not the stock will go up or down so the best decision to make is just to hold.
Dollar-Cost Averaging
- Dollar-Cost averaging is buying the same stock at multiple entry-points. As you know stocks tend to fluctuate and can be quite volatile at times and sometimes buying everything at one time is not the wisest thing to do. By staggering purchases, you may be able to acquire the same amount of share at a cheaper price. This technique is helpful in either a bull or a bear market.
- In a bear market stock prices are falling, and everyone is trying to guess where the bottom is so they can jump in at the lowest possible price and obtain the highest returns possible when the market recovers. Unfortunately for many new or even experienced investors, judging correctly where the bottom is at is seldom. Many will buy all in at an entry-point they think is the bottom only to find the shares continue to fall along and loses rise. A new question arises at this point: Do I pull out and cut my losses to get back in at a lower price or do I ride it out hoping that the actual bottom isn’t too far away? By buying chucks at a time as the stock continues to fall you lower the average amount of money spent for the shares. This means less money spent for the total amount of shares that was desired or more shares in total for the amount of money willing to be spent.
- In a bull market, this is a bit different. Obviously, you would want to buy in as soon as possible before the stock rises too much and all those potential gains are lost. But what if the stock in question is already too expensive or is steadily rising but has high volatility? In these cases, you would what to buy when the stock dips, or ‘buying the dip’. There are bad days even in a bull market and sometimes corrections do occur. Watching for these points is key as it will allow you as an investor to acquire these rising stocks at a cheaper price on average while minimizing risk. Like in the event of a market correction.
Asset Allocation
- Asset allocation an investment strategy that seeks to balance the risk and rewards of a portfolio in relation to the individual’s goals. Everyone is different as well as their goals and those goals change over the course of their life. A young investor who is thinking long term and in no need of immediate money may allocate the majority of his assets into stocks as they have time to weather any risks in the market for a bigger return. Whereas a middle aged or older person may need more immediate income and may invest in divined paying stocks or other short term low risk securities. With this in mind, identifying your needs and goals with your portfolio is actually far more important than the selection of individual stocks.
Hedging
- Hedging an investment strategy designed to reduce the risk and mitigate the losses from another investment. This usually done by taking an opposite position on a stock by making use of options or futures. Or, say you own 2 stocks from a particular sector, you know, or think, that sector is about to hit some rough times. You could buy more shares of the company you know that won’t be hit as hard while shorting the weaker company. There are many ways to hedge your portfolio, but the point is that the investment being made must go up a reasonable amount as the other falls.
- Another way to think of hedging is like buying car insurance. The insurance is the hedge, and the car is your investment, if you get into an accident, you pay your deductible and the insurance will pay for the damages or pay you out for the total of your car. If you had no insurance, then you have to pay more money out of pocket to fix your car or if it was totaled then everything is a complete loss.
Gearing
- Gearing is the ratio of a company’s debt-to-equity(D/E). This ratio informs us of how leveraged, (where the money is coming from), a company’s operation is. If the gearing is high, then the majority of the money is coming from lenders which is considered debt. If the gearing is low then it is coming from shareholders and profits, which would be equity.
- A highly leveraged company would have a gearing ratio that is 50% or more. Companies that are highly leveraged would be more at risk of a loan default and/or bankruptcy during economic hardships or sudden interest rate hikes.
- A gearing ratio of 25% or less is considered to be a safe, low-risk bet by investors and lenders alike. There isn’t much worry in these companies suddenly failing because low-leveraged companies are financially stable.
- Lastly a gearing ratio between 25% and 50% is normal for well-established companies.
- One thing to know about gearing is that just because the leverage may be high for a certain company it doesn’t immediately mean that it’s a bad thing and you should stay away from it. There are other factors that come into play like what sector it is in, what does the company offer, does it have a monopoly in that field, etc. Some industries it may be quite normal for it to have a high gear ratio like utilities, they typically run monopolies and even receive subsidiaries from state and local government. Some companies, while successful and stable, are also highly geared because they’ve taken out debt to expand their business to create new products in order to boost profits. Ultimately, a safe gearing ratio comes down to how well a company can manage its debts, how well it is performing, earnings growth, market share, and cash flow. All of which should be analyzed by investors before investing as these can give great insight to predict how well the company will do in the future.
Illiquid
- Illiquid refers to assets or securities that are not traded. This is because these securities are not highly sought after which results in and larger bid-ask spread, low trading volume, and higher volatility. Having illiquid assets is not desirable and tend to lead to losses for the owner if they need to sell quickly.
OTC
- In the event that a company doesn’t meet the requirements to be listed on a normal, centralized exchange such as NASDAQ or the NYSE, they can be traded over-the-counter. These securities are sold directly between two parties without being listed on an exchange and are facilitated by a broker or dealer specializing in OTC markets. Companies listed here are mostly on the smaller side but there are some big well-known companies can be found here as well like Nestle SA and Bayer A.G.
- Bonds can also be found here as well. Banks save money by selling on the OTC market as they can avoid paying listing fees needed to be on the exchange list.
Entry point
- The entry point is the price at which an investor invests in a particular stock. Finding the lowest possibly entry point is key to maximizing your gain.
- The entry point is price at which an investor invests in a particular stock. Finding the lowest possible entry point is key to maximizing your gains.

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