Stock Market Terms: 15+ Explained for Beginners π
Summary
TLDRThe video explains key stock market concepts in a straightforward manner, including bull and bear markets, securities, exchanges, brokers, shares, and terms like margin, dividends, and P/E ratio. It clarifies the roles of the SEC, brokers versus brokerages, and the difference between blue chip and penny stocks. The video also covers the significance of ticker symbols, bid-ask spreads, and the basics of index funds. This comprehensive guide is perfect for beginners looking to understand the essentials of investing and market operations.
Takeaways
- π A bull market is when prices are rising, indicating an overall trend of increasing prices.
- π A bear market is when prices are decreasing, indicating an overall trend of decreasing prices.
- π£οΈ You can be bullish or bearish on individual stocks, sectors, or the entire market based on your sentiment or investments.
- π Securities are tradable financial assets, including stocks, bonds, CDs, and options, regulated by the SEC.
- ποΈ An exchange is a market where securities are bought and sold, like the NYSE, NASDAQ, and Hong Kong Stock Exchange.
- π΅οΈ The SEC (Securities and Exchange Commission) enforces laws against market manipulation and regulates public sales of securities.
- π€ A broker is an individual or firm acting as an intermediary for investors and exchanges, while a brokerage is the firm providing this service.
- π Shares represent units of stock, and outstanding shares refer to all authorized shares held by investors.
- π The float refers to the number of shares available for trading, excluding those held by insiders.
- π Long positions profit from stock price increases, while short positions profit from stock price decreases.
Q & A
What is the primary definition of a bull market?
-A bull market is a period when the overall trend of increasing prices exists, indicating that stock prices are rising and investors are generally satisfied with their returns.
What does it mean to be bullish on a stock or sector?
-Being bullish on a stock or sector means you expect that the prices will rise and you are optimistic about its future performance.
What characterizes a bear market?
-A bear market is characterized by an overall trend of decreasing prices, where investors often experience losses as the value of their investments declines.
How can investors express their bullish or bearish sentiment besides verbal expressions?
-Investors can express their bullish or bearish sentiment by making financial bets, such as buying stocks (being long) to profit from price increases or short-selling stocks (being short) to profit from price decreases.
What are securities and can you give examples?
-Securities are tradable financial assets, examples include stocks, bonds, certificates of deposit (CDs), and options.
What is the role of the Securities and Exchange Commission (SEC)?
-The SEC is a U.S. federal government agency that enforces laws against market manipulation and regulates public sales of securities.
What is the difference between a broker and a brokerage?
-A broker is an individual or firm that acts as an intermediary for investors and exchanges. A brokerage is the service or business that provides the platform for trading securities.
What are shares and how do they represent ownership in a company?
-Shares represent units of stock that an investor can purchase, which in turn provide fractional ownership of the company. The ownership is proportional to the number of shares held compared to the total number of shares issued by the company.
What is the difference between outstanding shares and float?
-Outstanding shares are all shares currently authorized by a company and held by investors, while float refers to the number of shares actually available for trading, excluding those held by insiders.
What is the P/E ratio and why is it important in stock evaluation?
-The P/E ratio, or price-to-earnings ratio, compares a company's share price to its earnings per share. It helps investors determine if a stock is valued expensively or cheaply relative to its earnings.
Outlines
π Understanding Bull and Bear Markets
A bull market signifies an overall trend of increasing prices, making investors happy with their returns. The term can apply to the entire market, individual stocks, or sectors. Conversely, a bear market indicates a trend of decreasing prices, leading to losses for investors. Investors can express bullish or bearish sentiments verbally or through financial actions like going long (buying) or short (selling).
π Key Financial Terms: Securities, Exchanges, and the SEC
Securities are tradable financial assets, including stocks, bonds, CDs, and options. Public sales of securities are regulated by the SEC (Securities and Exchange Commission), which enforces laws against market manipulation. Stock exchanges, such as the NYSE and NASDAQ, are markets where securities are bought and sold. The SEC was established post-1929 crash to protect investors.
π€ Brokers, Brokerages, and Shares
A broker is an intermediary between investors and exchanges, facilitating stock trades. Popular brokers include Robinhood and Fidelity. Shares represent units of stock, giving investors fractional ownership of a company. Outstanding shares are all shares held by investors, while the float refers to shares available for trading. Long positions profit from stock increases, while short positions profit from decreases.
π Stock Market Fundamentals: Blue Chip Stocks and Penny Stocks
Blue chip stocks are shares of well-established, reputable companies like Nike and Apple, often viewed as lower-risk investments. Penny stocks, trading under $5 per share, typically come from smaller companies and are less regulated. They often trade on over-the-counter markets and can be delisted from major exchanges if their share price remains low.
π’ Understanding Ticker Symbols and Market Prices
Ticker symbols are unique abbreviations for companies on exchanges, such as AAPL for Apple. The bid price is the highest price a buyer will pay for a security, while the ask price is the lowest price a seller will accept. The spread is the difference between these prices, with a smaller spread indicating greater liquidity. Market orders can be filled within the bid-ask spread.
π³ Margin, Dividends, and Index Funds
Buying on margin involves borrowing from a broker to increase purchasing power, though it's risky. Dividends are distributions of a company's earnings to shareholders, often quarterly. The dividend yield represents the annual dividends per share divided by the current share price. Index funds are pre-made portfolios of stocks or bonds, offering low expenses and diversification.
π Key Metrics: Earnings and P/E Ratio
Earnings per share (EPS) is calculated by dividing a company's profits by the number of outstanding shares, indicating profitability. The price-to-earnings (P/E) ratio compares a company's share price to its earnings, helping investors assess if a stock is over or undervalued. It's a useful indicator but should be used alongside other metrics.
Mindmap
Keywords
π‘Bull Market
π‘Bear Market
π‘Broker
π‘Securities
π‘Shares
π‘Margin
π‘Dividend
π‘Index Fund
π‘Earnings Per Share (EPS)
π‘Price-to-Earnings (P/E) Ratio
Highlights
Definition of a bull market: an overall trend of increasing prices.
Bull market sentiment can apply to the entire market, individual stocks, or sectors.
Bear market: a time when there's an overall trend of decreasing prices.
Sentiment in the market can be bullish (positive) or bearish (negative), and investors can act accordingly.
Difference between being bullish or bearish in sentiment vs. actual investment positions (long or short).
Securities: tradable financial assets including stocks, bonds, CDs, and options.
The SEC (Securities and Exchange Commission) regulates public sales of securities.
Stock exchange: a market where securities are bought and sold (e.g., NYSE, NASDAQ).
Difference between a broker and a brokerage: a broker acts as an intermediary, while a brokerage is the firm facilitating trades.
Shares represent units of stock, providing fractional ownership of a company.
Outstanding shares: all shares currently authorized and held by investors.
Float: the number of shares available for trading, excluding insider holdings.
Margin: a loan from a broker to increase buying power, which involves risks.
Dividend: distributions made by companies to their investors, often quarterly.
P/E ratio (price to earnings ratio): a valuation metric comparing share price to earnings, indicating whether a stock is expensive or cheap.
Index fund: a portfolio of stocks or bonds representing a specific market index, offering diversification and lower volatility.
Transcripts
Well, I'll give you the definition right here in a second,
but I'll tell you what,
one of my favorite definitions I've ever heard
is a bull market is when prices are bull,
as in bull S-H blank blank.
You know what I'm talking about.
But the actual definition here, guys,
a bull market means that an overall trend
of increasing prices exists.
So basically that is a time period when prices are going up
and people are generally happy
with their returns in the market.
Now, saying that the market is bullish,
that could be referring to the market overall,
which would be all of the stocks,
or you can say this about an individual stock or sector,
which is just an area of business where you could say,
"Okay, I am bullish."
So for example, I could say,
I am bullish on genius brands,
that's one of the stocks in my portfolio,
and then I could say maybe I'm bullish
on a particular industry.
There's not really much of that
that you're bullish on right now to be fully transparent,
but that is how you would use that particular lingo.
Now, on the other hand,
I'm sure you've heard of the other side of the fence here,
which is the bear market.
And a bear market is basically when there's an overall trend
of decreasing prices.
So that's a time when people are putting money
into the market and then maybe six months later,
seven months later, they've lost 20, 25, 30%, 40%.
It's a time when the average individual entering that market
is in fact losing money.
Not to mention as well here, guys,
in the same way that you can be bullish
on a particular stock, you can also be bearish.
And that would apply to stocks as well as different sectors
or the entire market as a whole.
So if, for example,
you were looking at a particular stock and you said,
"I don't understand why the price is so high.
I am going to be bearish on that stock."
Now, there's two different ways
that you could be bullish or bearish on a particular asset.
You could be bullish with just your dialogue
or bearish just by talking about it,
and that's something called your sentiment
or feelings towards the stock.
But then you can also put your money where your mouth is
and either be bullish, which means that you're long a stock
or you're bearish, which would mean that you are short.
So it's kind of the situation here where verbally,
you could be bullish or bearish,
and then you can put your money where your mouth is
and do a bullish or a bearish bet.
Most investors, retail investors stick to bullish bets
because short selling is quite complicated.
But obviously as we've heard about
in the financial market news lately,
short-selling is quite a popular activity
among the larger investors.
So moving on here, guys,
another term that used to just confuse me wildly
is securities.
A security is a tradable financial asset.
So here's examples of securities, stocks, bonds, CDs,
which is a certificate of deposit, and options.
So if you ever hear somebody saying,
"Oh, okay, I'm trading securities,"
they're usually talking about stocks,
but it's oftentimes one of those things listed here as well.
And also, guys, not just to mention here as well,
public sales of securities are regulated by the SEC,
which is the Securities and Exchange Commission.
The next one to cover here, guys, is exchange.
Another word you hear about quite often
and often times what they're talking about
is a stock exchange.
This is simply a market
where securities are bought and sold.
Similar to way back in the day
where people would go to a market
to swap their beans for corn
and different goods that people had,
it's just a market where there's an exchange of items.
In this example, here,
it's going to be those securities that we just talked about.
So examples of exchanges
include the New York Stock Exchange,
the NASDAQ and the Hong Kong Stock Exchange.
There's also different, smaller exchanges out there
where penny stocks trade.
However, those are oftentimes viewed
as less desirable markets.
Moving on here, guys,
now we'll talk more about the SEC
just because it's good to know who is out there
as the watchdog for our financial markets.
The SEC or the Securities and Exchange Commission
is an agency of the US federal government.
Now, this was founded
after the great Wall Street crash of 1929.
And the primary purpose of the SEC is to enforce the law
against market manipulation.
Now, I will tell you why there's a good handful of people
that would probably disagree with that definition there
at the bottom in terms of what the SEC is actually doing,
but I'm just coming out, you guys, with the definitions here
of what they are in fact supposed to be doing
on your behalf.
Now, the next term we're gonna come across here is a broker
and then there's something else called a brokerage.
Now, a lot of people still are just unaware
of the fact that there is a difference between these two
and what the difference is, so we're going to cover it.
Well, first of all, starting with a broker,
this is an individual or a firm
that acts as an intermediary for investors and exchanges.
So at the end of the day,
if you wanna go out there and trade stocks, you, yourself,
can't go running into the New York Stock Exchange office
and buy shares yourself, you do have to go through a broker.
They're basically your stock dealer.
Now, an exchange accepts orders from members only.
So a broker works on behalf of individual investors.
So common examples today of brokers
would be Robinhood, Webull, Fidelity, M1 Finance, et cetera,
all names that I'm sure many of you have heard of.
Next up let's cover the term shares.
Well, shares represent units of stock
when you actually purchase a stock.
So through the IPO process,
companies decide to issue stock in order to raise capital.
And I just did a full video talking about IPO investing.
If you're curious about how that actually works,
I'll throw a card up in the corner.
So individual investors can purchase shares of a stock
in exchange for fractional ownership of a company.
So basically, shares are units of the stock.
If you have 10 shares, you have 10 units of that company,
and that ownership is proportional
to however many units or shares of that company
exists out there in the world.
Next up, we have another term you'll come across
called outstanding shares.
And no, these are not the shares
that have done a really good job
at being units of a company, that's not quite the case here.
This refers to all of the shares currently authorized
by a company and held by investors.
So what we were just talking about earlier,
how your number of shares you own
gives you proportional ownership
based on the total number out there.
Well, this outstanding shares figure
is going to tell you how many shares,
authorized shares of the company are out there.
And then another term that you'll come across
in this neighborhood is float.
And that refers to the number of shares
actually available for trading.
Because a lot of shares are owned by insiders,
so you can't always look at outstanding shares,
you gotta look at the float to see,
okay, this is the actual pool of shares
currently available for trading.
Now, as mentioned earlier,
talking about bull and bear markets,
we talked about being long and short.
That's where you actually say,
"Hey, I believe this company is going to go up or down,
and I'm putting my money where my mouth is
and I'm hoping to make a profit in the process."
So long refers to a situation
when an investor believes they will profit
on a stocks increase, whereas short refers to a situation
where an investor believes they will profit
on a stocks decrease.
So I'm sure we've heard about short sellers out there.
Those are people who are betting
against individual companies.
They're looking to make money as that share price falls.
So another term that you're going to hear oftentimes
is something called blue chip stocks.
And these are going to be shares of companies
that are well-established, possess a strong reputation,
and generally pay dividends.
Now, that's not always the case,
and a perfect example being Amazon,
a lot of people refer to that as a blue chip stock,
but they do not in fact, as of this video, pay a dividend.
So right there, you have a couple of examples,
that would be Nike, Apple, Amazon, and Walmart.
They're large durable, well-respected,
and they tend to be viewed as a lower-risk investment
into the stock market.
On the other hand, we also hear about penny stocks,
which are from smaller companies typically,
and a definition of a penny stock
is actually any stock that trades under $5 per share.
So if you ever hear someone talking about a penny stock
and it's like $3.55 a share,
and you're confused because you're like,
"That's more than a dollar,"
well, there you go, now you know the answer.
That's what that is right there, guys.
So penny stocks typically do not trade on major exchanges
and they often end up on the over-the-counter markets.
They're less regulated and just a less desirable place
to be putting your money overall.
And the reason being
is because many of these large exchanges
have listing requirements, one of them being
that you have to maintain a price of $5 or more per share.
So if a company has a low share price
for a long period of time,
they can risk something called the D listing,
which is where they get the boot from the exchange,
and they have to go to the OTC markets,
which is just a crappier place to be.
Not gonna be nearly as many people participating
in looking to buy shares over there.
So the next piece of information here, guys,
is called the ticker symbol or the stock symbol.
This is a unique abbreviation
that identifies a company listed on a particular exchange.
So just for example here, guys,
the company Apple is symbol AAPL,
Netflix is going to be NFLX,
and Facebook is ticker symbol FB.
It's literally just an identifying marker.
Whereas in the past,
if you were calling up your broker on the phone, you'd say,
"Hello, I'd like to buy 10 shares of AAP or APPL."
Actually, it is AAPL, I believe that might be a typo there.
But double-check before you actually purchase.
But irregardless, that would be the process.
You call them up, you give them the symbol,
and then that is how
they would process that transaction for you.
Moving on, this gets a little bit more complicated,
but it is good to know,
and it's called the bid versus the ask
as well as the spread.
So the bid is something related to the price.
And this refers to the highest price
a buyer will pay for a security.
If you think about an auction,
this is somebody bidding on that auction.
The ask price refers to the lowest price
a seller will accept for the security.
So the person bidding is looking to buy,
the person asking is looking to sell something
that they already have in a marketplace via this exchange.
The difference between these two prices
is known as the spread, and the smaller the spread,
the greater the liquidity of the given security.
So basically,
if there's a ton of people trading a particular asset,
the spread might be half a cent.
Where someone's looking to sell for $1.70,
and someone's looking to buy for $1.75.
But in a thinly traded market,
you could have a really wide spread
because no one's really selling the asset,
where someone's looking to bid $1.20,
but the lowest ask is $1.80.
The issue being, if you were to place an order,
your order could be filled in any range there,
meaning you don't know what price
you're actually going to pay.
The next term to know here is called margin
or buying on margin.
And this is simply when you have a loan from a broker
in order to increase your buying power.
Generally not a good idea, not something that I use myself.
I do take advantage of portfolio, line of credit,
but I do not use it for buying additional assets
in the markets.
But just be aware that this does exist,
and this is what it's called.
Every brokerage out there has their own terms and agreements
with, as far as it goes to margin.
For example, two to one margin
would mean that you could invest double what you have
in your account.
So if you had a hundred grand,
they would loan you another 100,000 at a set interest rate
to basically give you more exposure
to those stocks or securities.
Another term to be familiar with here, guys,
is called a dividend.
And this is simply distributions
that are made by some companies to their investors.
Now, it's important to note here
that companies are not obligated to pay dividends
and they can stop paying them at any point in time.
However, it's not often desirable for them to do that
because a lot of these companies
don't have too much going for them in terms of growth
because they've already become so large.
So issuing a dividend oftentimes is the main thing
keeping people sticking around.
So it's basically money being handed to you
typically on a quarterly basis
to reward you for owning the stock,
and they're sharing a portion of their earnings.
So there's a lot more information in this, guys,
in my video on dividend investing for beginners.
I'll throw that up in the corner
if you guys wanna check that out after.
And then the dividend yield
is the annual dividends per share
divided by the current share price.
That tells you at a specific point in time,
what percentage of your investment you would earn back
in the form of dividends over the next year?
Another key term to understand here, guys,
is something called an index fund.
And this is simply a portfolio of stocks or bonds.
So basically instead of going out there
and picking individual stocks,
many people choose to invest in a pre-made basket
known as an index fund.
And these typically feature low expenses
and lower volatility
due to the fact that you are diversified
and investing in a passive manner.
I also did another video recently
talking about how to research an index fund or ETF.
If you guys want to check that out,
there's going to be a card up in the corner,
if you wanna check it out at the end of this video.
The next term to cover is something called earnings,
or this is often called EPS,
which is the earnings per share.
This is calculated by taking profits
divided by the outstanding shares.
And profits is going to be
where you have revenue that comes in
minus expenses gives you the profit
EPS is taking all of those earnings
and dividing it by the number of shares,
telling you per shareholder,
this is how much that company earned,
and positive or higher EPS typically is a sign of strength
as it denotes higher profitability,
which can oftentimes lead to an increase in the share price.
So EPS is a very important indicator
that a lot of people follow
when they are investing in stocks.
The last term we're gonna cover here, guys,
is called the P/E ratio or the price to earnings ratio,
which is one of the ways
that people try to evaluate stocks in the market.
Now, there's no end all be all out there, guys,
in terms of one indicator that you can look at
that's gonna tell you everything about the markets,
but the P/E ratio is a decent indicator
in your portfolio of tools.
Basically what it looks at is the ratio
between the price or the share price
relative to the earnings that company has,
and it gives you an idea of
if that company is expensive or cheap
relative to their earnings.
So typically speaking, a higher P/E ratio could indicate
that a price is a little bit expensive for a stock
and a lower P/E could indicate that it is cheap.
However, every industry out there
or different segment of business
has their own normal level for a P/E ratio,
that is why you can't simply just look at a P/E ratio
and say, "Oh, that's cheap," or, "Oh, that's expensive."
But it is a good indicator to know,
and definitely one for further research.
So anyways, guys, that is going to wrap up this video.
I hope you enjoyed it.
If you made it to the very end
and you enjoy videos about investing,
make sure you subscribe
and hit that bell for future notifications.
And as always, guys, I hope to see you in the next.
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