Title: What are stocks?
Hi everyone, welcome to another edition of the CG Education Series:
Today we’re going to talk about Stocks; what they are, how the work and why people buy them. I think a lot of times the notion of investing in “the stock market” can get overly complicated. Part of this stems for our 24/7 information feeds. I’m not going to get on the “fake news” train, but a lot of what’s portrayed in the news is not necessarily reality…
So let’s start with the basics: there are thousands of companies around the world, all of which can be broken up into two different classes: 1) private companies and 2) public companies. Regardless of the class, all companies are composed of equity, or calculated value of that company. Let’s say you start your own business and it grows and you’re the 100% owner, well then you’d own 100% of the equity in that company. Now let’s look at a large tech company”. Much bigger scale and many, many more owners who own a % of the total equity of that company. Those %s are called shares and trade on an exchange like the NASDAQ that we see in the news.
The symbols or “Tickers” represent the shares of that particular company and what the value of those shares is trading at. Let’s say for example that I really like iPhones and think the company that makes them could be promising, so much so in fact that I’d like to own a part of that company because I think it will be worth more in the future as it grows. Instead of having to call the CEO Mr. Cook directly, I can simply go to the NASDAQ exchange electronically and buy myself an ownership stake directly!
That in a nutshell is what the stock market is made of. At the end of the day we want to buy and invest in great companies that do extraordinary things and potentially make a profit. It’s somewhat unfortunate that this concept has become lost over the years. Everyone just refers to it as “the market” or an index or a sector like Consumer Staples. Regardless, our goal as investors is to own companies that we think will become more valuable and potentially make more money over time because they’re good at what they do or we like how they do business whether it’s green energy, social responsible and so forth. It’s just that simple.
It’s our job and part of our Process to help select those companies that best fit with what you’re comfortable with and that will help you achieve your ultimate goals. Studies estimate that roughly half of the companies listed in the S&P 500 will become obsolete within 10 years’ time which is amazing! Suffice to say, this is not your grandparents’ stock market anymore and new innovations happen every hour (it seems). That means you have to have an open mind and be willing to adjust your investments regularly.
We hope this was helpful and interesting and as always implore you to send us any follow up questions!
Thanks for joining!