STOCK MARKET 101
Why did I write this guide?
I have always been interested in the Stock Market! Movies like The Wolf of Wall Street, Inside Job and The Big Short fascinated me, I couldn’t believe that people could make money from money. Years ago I looked everywhere for a course that could teach me how to invest in the stock market step by step and I couldn’t find anything that could teach me step by step how to Invest. Most of the books and courses that I found were too academic and had way too many concepts and ideas that as good as they sound I couldn’t apply on the real world.
So I had to grab and read every book that I could find regarding investing in the stock market and spend several hours daily reading finance websites, stock promoters, bull boards, group chats… you name it! So while I was teaching myself how to invest, I opened my first online broker account and started investing… and failed miserably! Why? Because I didn’t have a system, I didn’t have a plan at all.
I was buying stock that all this “experts” on this TV shows and Finance websites recommended and couldn’t understand why they were doing so bad after being reviewed as a perfect buying opportunity, or even worse, that after confirming good news on the financial release, the stock plummeted!
I was buying hype stocks, stocks that were going up real fast and I didn’t want to miss those rides, and I lost money chasing those stocks and to make it worse, I had NO idea why those stocks were going up or why they plummeted as soon as I bought them, I was at the mercy of the market. Does any of this rings a bell to you?!?
Since then I adopted a system to buy and sell stocks, and I started teaching my friends which are now successful stock market investors. How I define a successful investor? An Investor that while is making money out of their investment, he/she also knows why they are making money, they have a plan for every stock they own and they are constantly studying what strategies have worked and which ones didn’t but they don’t stop there, they also analyze WHY their strategy failed.
I don’t want you to make the same mistakes I did!
If you don’t know anything about the stock market, or you are investor who feels at the mercy of the stock market, then you are in the right place.
Who is this guide for?
For anyone who wants to make money while investing in the stock market! Are you a beginner?, awesome, this is the right place for you! Are you currently investing but feel that you need to improve your game?, then this is also the right place for you.
You don’t have to be a math genius or have a college/university degree in order to invest. As long as you are willing to put some work and learn the strategies that I will show you, then you can also become an investor.
Whos is this guide not for?
Are you looking to get rich quick?! Then look somewhere else or stick to buying lotto tickets. You have to put some work in order to see some results. Nothing good comes without putting some work on it.
What is the next step?
Read the guide page by page! Don’t skip sections since this is designed to develop your knowledge step by step. Go on your own pace and please finish the guide.
This is something that you can do! You need to have the right mindset, a mindset where you believe in yourself, where your financial goals are achieved and you are providing a better financial life for yourself, your family, significant other, kids, you name it. Others might call you crazy, “The stock market is not for you, you will lose EVERYTHING”, I think they are the crazy ones for not even trying to pursue their goals.
People who tell you that you can’t achieve your goals are people who are afraid to try to do something new and are projecting their fears to you, don’t let them hold your back, we are bigger than that, let’s expand our confort zone shall we?!?
I’m not saying that you won’t lose money, but by following my strategies, you can easily limit those losses and maximize your gains so you are making more money than what you are losing and therefore getting closer to your goal.
You have to have a goal, something that puts everything in perspective and gives you the strength to go on with your investing journey and keeps you on the right path even when our plans don’t go well, don’t give up, don’t throw the towel. Don’t be afraid of failure since failure brings lessons that we have to learn to achieve our goals.
I keep saying goals for a reason, I don’t like the whole dreams thing, I believe in reality. Dreams will be dreams, but if you have a goal and a plan, you are no longer “Chasing your dreams”, you are forging your reality! And only YOU decide which reality is that going to be.
May you be wealthy on this journey!
What are stocks?
This is massive subject by itself! I will try to keep it simple and break it in sections. The reason why stocks exists is because companies who wants to raise capital start offering shares to the public in exchange for that capital.
ABC Inc wants to start a company but it needs $1,000,000 to do it, the company itself have $500,000 in cash and ends up going to public investors to raise the remainder portion. To do this, they decide that the company has a total of a 1,000,000 shares.
ABC Inc finds 5 investors who are willing to give $100,000 each, in exchange, they each get 100,000 shares and the shares are distributed like this:
- ABC Inc has 500,000 shares
- Each 5 Investors have 100,000 shares each
How much is each share worth? $1,000,000 divided by 1,000,000 shares give a value of $1 per share.
Let’s assume that ABC Inc is currently doing an amazing job and the company is growing and growing and currently is worth $5,000,000 compared to the initial $1,000,000, this means that the company has grown 5 times and share price also reflects that. $5,000,000 divided by 1,000,000 shares accounts for $5 per share.
ABC Inc shareholders will be pretty happy to find that their initial $1 per share is now worth $5 per share.
What are shares?
Shares is just a piece of paper that entitles a portion of the assets and profits to the shareholders, you basically have a tiny portion of the company ownership. What does this means to us the retail investors? It means that if the company decides to pay dividends (from profits), we are entitled to a portion of that, and also if the company value goes up or down, our shares with follow that too.
Why stocks go up and down?
There are mainly 3 factors that affect the share price:
- How much the company is worth (Market Capitalization, or Market Cap for short)
- Supply and Demand
In the case that ABC Inc keeps doing great in the business, it’s worth is going to continue increasing and with this, the value of each share. Keep in mind that not only the assets (buildings, inventory, parts, etc.) and revenue impact the Market Cap but also the Company Intangible assets like copyrights, patents and trademarks among other.
This is the reason why companies like Apple, Amazon, Google, Facebook, Netflix, etc are worth so much, is not only due to the sum of it parts, but also because they are market leaders and have a product, service or experience (Apple) that no other company can do as well as they do.
Calculating the market cap of any company is an easy task, all you have to do is: Outstandings Share X Share Price = Market Cap. Using ABC Inc as an example you would do: 1,000,000 shares X $5 share = $5M Market Cap.
Supply and Demand.
You’ve probably have heard many times about this famous law of supply and demand, this law plays a big role on the stock market and it’s a simple concept to understand. Supply and demand is all about buyers and sellers. More buyers than sellers will increase the share price and more sellers than buyers will decrease the share price.
Let’s assume that ABC Inc is having positive news about a new product they want to release, investors get excited about the possibilities and rush to buy shares, since the supply of share is low, the price for the stock will go up.
If ABC Inc is having a rough time and there’s the impression that the company might lose value, shareholders will rush to sell their shares in order to avoid losing money and will overflow the supply of shares, the price will go down.
To simplify this concept even more, let’s assume that there are 10 buyers and 10 sellers for ABC Inc shares. All the sellers want $5 per share, but only 3 of the buyers are willing to pay that price per share, now we have 7 sellers asking for $5 and 7 buyers willing to pay $4 per share. In order to accommodate this, either the sellers or the buyers will have to adjust their prices in order to make the deal happen.
Investors are willing to pay a premium to buy shares of ABC Inc if they expect that the company will be worth a lot more in the next week/month/year. ABC Inc shares are currently worth $5, but there is a group of investors that believe that this company has a lot of potential and on the next year the shares will be worth $10, in order to secure shares they decide to issue a buy order for $5.50, since this is better than what the sellers were asking, this investors will definitely get the shares. By doing this, this investors are raising the share price from $5 to $5.50
This is it! Part 2 can be read here.
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