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September 3 - September 10, 2022
A stock is a share of ownership in a company.
The stock market adjusts to new information.
Stocks also move based on the laws of supply and demand. If a lot of people want to buy a stock, the share price will move up.
It tries to figure out what is most likely to happen over the next 3-6 months, and then prices stocks accordingly. That's why we say that the stock market is a "forward-looking mechanism" or "discounting mechanism."
like to buy stocks and hold them for many years. We call them "investors."
people like to buy and sell stocks more quickly, maybe holding them for only an hour, a day, a week, or a month. We call these people "traders."
Stocks are usually bought and sold on what are called "stock exchanges." A stock exchange is simply a place where buyers and sellers show up and exchange their shares for money, or their money for shares. A stock exchange is a little bit like an eBay for stocks.
The NYSE is best known for its blue chip (high-quality) stocks like
Coca-Cola and McDonald's.
Nasdaq is best known for its tech stocks like Ne...
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NYSE stocks are usually identified by a two-letter unique "ti...
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Nasdaq stocks usually have four-l...
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As an individual, you cannot trade directly on a stock exchange.
For that you will need a "broker" or "brokerage account."
A broker is simply a middleman who gives people access to...
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When you are buying a stock, you will be given the choice of using two different kinds of orders. The first is called a "market order."
This order tells the broker to get you into the stock as quickly as possible, regardless of price.
This is because every stock has a bid price and an offer (or "ask") price. The bid is the price at which someone is willing to buy the stock. The offer is the price at which someone is willing to sell the stock. Memorize this phrase right now:
“You sell to the bid, and you buy from the ask.”
The distance between the bid and the ask is called the...
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A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.
That is why it is usually best to stay away from illiquid stocks.
A limit order is the second type of order, after a market order.
a limit order specifies a price.
A Day order will only be executed during regular market hours today.
A GTC ("good 'til cancelled") order will be good for today's market hours, as well as the following days and weeks.
If you don't cancel it, it will still be working.
Normal trading hours for U.S. stock exchanges like the NYSE and Nasdaq are 9:30 am EST to 4 pm EST.
Some brokers will let you trade stocks in the pre-market trading session (4 am to 9:30 am EST) or in the post-market
trading session (also known as "after-hours trading" and lasting fr...
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If you are going to trade before the market opens or in the after-hours market, a...
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Even normally liquid stocks can be quite illiquid (and hence volatile) during both o...
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Stocks with lower trading volume will usually be more volatile, with a wide bid-ask spread that also bounces around.
Until you become an advanced trader, it is probably best to stick to normal market hours. And please don’t ever trade an IPO using market orders. That is the ultimate newbie mistake. More on that in a later chapter. . .
An index is simply a collection (or "basket") of stocks.
indices like the S&P 500 are market-cap weighted, which means that the companies in them that have larger market caps are given higher weightings and thus have a greater influence on the index.
Dow Jones Industrial Average (DJIA).
It always contains only 30 companies.
When you hear on the news that the "Dow" was down 300 points, this is the index that is being referred to.
The 30 Dow stocks are usually very large and well-known companies. Sometimes people call them "blue chips" or "blue chip stocks" because they are large, mature, profitable, and fairly stable companies.
Another well-known index is the Nasdaq 100, which contains mostly tech companies.
Most Nasdaq 100 companies can be considered "blue-chip companies" as well.
Some smart people came up with the idea of the ETF ("exchange-traded fund"). An ETF trades just like a stock. You can buy or sell it all day long in your brokerage account. Each ETF represents a certain index. So the ETF for the S&P 500 trades under the ticker SPY. The ETF for the DJIA trades under the ticker DIA. And the ETF for the Nasdaq 100 trades under the ticker QQQ.
If you buy the QQQ and hold it for the long-term, you will be able to profit from the long-term growth of the tech industry.
Indexing is a form of "passive investing." Passive investing refers to any strategy that does not involve a lot of thinking
When you index, you just buy whatever stocks are in the index. You only sell a stock when it gets kicked out of the index. And you only buy a stock when it gets added to the index. Or you just buy the SPY or QQQ, and these index adjustments all get done automatically for
Today indexing is widely considered the safest and best way for most people to invest in the stock market.
By buying a stock or index/ETF at different times, you are allowing the wiggles of the stock to smooth themselves out, since you are always buying at a different price. By doing this, you end up getting a pretty good "average price.” That is why this practice is called "cost averaging.”
Buying a stock index like the S&P 500 is a great way to get started investing.
That being said, a great time to invest in an index like the S&P 500 is during a bear market. If stock prices have been falling for 6 months or more, and there is a lot of pessimism in the air, it might be a good time to invest some extra money into index funds.
