Step 1 - What is the Stock Market???

First off, the stock market is not a real place you can go into like a Walmart, it refers to a sort of online store where investors can buy and sell partial ownings of companies. Anyone over the age of 18 can start what is called a brokerage account with a financial institution (Such as Schwab or Fidelity). This account allows you to buy or sell shares of companies on the stock market anytime the market is open, which is usually 9:30am - 4pm (ET) except on weekends and most holidays where it closes. 

This is a great way for the average person to get a share of a company they otherwise would not be able to afford to have stake in. Any average person would not be able to buy their way into a big company such as Coca-Cola, but with stocks they can buy a very small portion of the company and reap the rewards if it does well or take the hit if the stock falls. This leads us to the question of....

What Makes a Stock Go Up or Down???

The price of stocks changes based on supply and demand, the company’s performance, economic conditions, and other factors that might not seem rational, like investor emotions, but all of which are important when considering buying or selling your shares.

EXAMPLE 1

Anyone, at any time, can look up a company's stock and see what the trading price is at that moment as long as the company is publicly traded (more on that later). For example....

If we look at Apple's stock price on July 30th, 2021 (shown in the graph) the price listed is $145.86 and if we look at the price as of April 16, 2024 (Shown on top of the picture) it is 169.38. Meaning if you wanted to buy a share of Apple stock and own a fraction of the company it would cost $145 on Jul 30th and almost 25 more dollars 3 years later on April 16th. 

Now, Apple currently has 15.8 billion outstanding shares as of April 16th, 2024, meaning buying 1-2 shares does not change the company in any way, but if you believe Apple will continue to improve into the future, then buying their stock could help you make money over the long term.

Step 2 - THE PARTS

The best way I have found on how to learn about the market is to first learn about all the moving parts in the stock market, and then connect them at the end to make the machine. That way you know how everything works, and any problems or holes can be filled. Below are what I believe to be the 4 biggest and most important moving parts.

  • Public Companies - Not every company offers an investor the option to buy their stock on the market...Only companies who have issued an Initial Public Offering (IPO) can be publicly traded by anyone. They have a set number of shares, and some companies even pay dividends. Dividends consist of money the business has generated and decided to pay back to their shareholders as a sort of "Thank you for owning our stock." Dividends are a percentage of the share price, most payouts are around 1-3 percent, and the shareholder receives them in 4 equal amounts throughout the year totaling the 1-3 percent.

  • Brokers - A stockbroker is the person who executes your trade on the stock market. When you decide to buy or sell shares this is the middleman that communicates with both sides and sees to it that the trade is ordered and fulfilled. 

  • SEC - The Securities and Exchange Commission, or SEC, is an independent federal regulatory agency that protects investors, capital, oversees the stock market, and enforces federal securities laws. They essentially make sure everyone plays by the rules.

  • Importance of the markets - The stock market as a whole is important for a few reasons including....

  1. It is a great way for companies to raise capital because the buyer is giving money to own some of the company.

  2. Investors can have their money work for them through exponential growth, compound interest, and dividend payments.

  3. Provides a way for companies and the public to diversity assets and provides countless ways to make money in every industry imaginable.

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SO... now time for quick recap on everything we have learned so far. The stock market is an online market where companies, after listing an IPO, can sell shares of their company for anyone to buy. The share price fluctuates based on news and other factors listed above, and some companies pay quarterly dividends to their shareholders. 

Finally, the market is a great place for companies to raise capital, investors to have constant returns on their money (rather than it just sit in a checking account), and all of this is kept safe by the bank's security on your account and the SEC locking down the markets.