How Do I Buy a Stock?

Here is another post where I will give some more very basic info on the world of trading.

The most basic question that can be asked other than what a stock is would be how to buy them.

There are two primary ways to purchase stocks: A stock brokerage company and DRIPs & DIPs (which is, btw, what we also call stock brokers that are morons, hahaha!).

Stock Broker:

A stock brokerage is a company that purchases stocks on behalf of their customers. There are two types of stock brokerages: full service and discount.

A full service will (in theory) offer advice on what and when to purchase, as well as paying attention to trends and staying in communication with you on a regular basis as it pertains to where you stand and opportunities that might be appealing. These types of brokerages tend to be expensive, but offer expertise that you probably don’t have as well as keeping an eye on your investments for you so you can concentrate on other things. Like golf.

With the advent of the internet came the ability of everyone to be a stock broker, and so the discount brokerage or independent agent was created. The benefits of going with a discount broker or brokerage is that they are much cheaper than a full service firm (thus the name “discount”). The downside is that they are typically less knowledgeable and less likely to offer continual support the way that a full service brokerage will do.

What is Debt Vs. Equity?

One of the questions I am asked on a regular basis when educating people about stock trading is, “Why would a company issue stocks?”

The answer is in the difference between debt and equity.

I’m sure the reader is familiar with the idea of debt, but as it relates to a publicly traded company, debt means private ownership and responsibility of paying that down and off. Most of the time these private companies, when they need capital (whether $10k for a new pizza oven at Mama’s Pizza kitchen, or $10mill for a technology based global company to put towards R&D) they will do what we do; borrow from a lender like a bank or other financial institution. This puts paying back the loan, with interest, squarely on the shoulders of the company’s owners.

Equity, by contrast, is where a company determines its assets and monetary value (which includes an earnings forecast) and offers a portion of that value to investors called shareholders. The equity of the company, and what the individual shares are worth, are what makes keeping an eye on your investments critically important. This type of system also means that the majority shareholders (typically billionaires and investment firms) have a say in how said company is run.

The advantages of equity to a company of any size is that no interest is paid because the money used for new projects, expansion, and other related things are drawn from the value of the company rather than a lender. This process is much like the way that your income tax is used on a governmental level (though with this model there is less red tape and political corruption; to be sure the one influences the other in major ways both directions).

The stocks based on the equity of the company rise and fall as profitability does, and so these stocks are traded continually at current value. The idea is that when the time comes to trade or sell these shares they will be worth more than when they were purchased, equaling a profit made for the investor.

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Again, this is bare bones education. There are deeper levels of understanding that you will gain as you become more trade savvy.


The Effect of Public Opinion on Trading

Hi everyone, this is my second post on the basics of trading (check out my last post here)

I wanted to talk about how public opinion affects trading, but before I start let me say what I am NOT writing about here.

There is a lot of conjecture and debate on how public opinion affects trade policy. For example, an number of scholars have spoken on how in democratic nations public support for free trade lowers tariffs, and a few other things on how that situation is somewhat symbiotic with the desires of the consumers is significant. Blah, blah, blah.

Trade policies worldwide are an important thing to keep an eye on, but not overly so (let’s leave that to the analysts shall we?).

What I AM writing about today is how public opinion and good and bad press (which is biased for profit, if that isn’t obvious) affect trading when it comes to stocks and other assets.

This is a concept you are already familiar with to one degree or another as an individual, you just might not understand how it relates to how it can affect you as an investor and trader.

Here is an example of what I am talking about.

Consider what happened when Nike took a hit to their stocks when celebrity golf super star Tiger Woods got caught cheating on his wife with more than a dozen different women.

The scandal was everywhere and was talked about by everyone, which while good (sort of) for Tiger’s celebrity status, caused Nike, who had been using Tiger as their poster boy for a few years, had a black eye.

I just realized that could be taken as a racist slur against Tiger, but honestly; if that is where you go with that, just go away. No offense intended.

Nike’s popularity took a hit the way that Subway (the sandwich) did with the underage prostitution charges filed against their spokesman Jared (though that was perhaps more than a black eye).

This scandal caused Nike’s evergreen stock values to drop by a full 5% margin. Doesn’t seem like much, right?

It is if your company has billions of dollars in assets!

So you see how public opinion can hurt trade values from an outside perspective?  Check out this video!

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Back To The Stock Trading Basics

As much as this seems like a no-brainer, stock trading is based on estimated value of an entity with significant property or value (assets), as well as the estimated profitability of said entity.

What the heck does that mean?

Consider Burger King, which might seem a weird example, but bear with me.

When Burger King’s people come out with an idea for a new sandwich or whatever, they have a group of people dedicated to predicting how well a product will do. This is in turn used to create a profitability forecast of sorts, giving them an estimate on ROI for things like manufacturing, shipping and distribution, marketing etc.

This kind of thing, combined with other aspects of well BK is doing as a company like whether or not their profits have risen or fallen over a period of time, events like lawsuits and other things that reflect badly on their public image (which can drive a stock value down in a hurry depending on the situation) all have to do with their current stock value as a company.

The better they do, the higher the prices their stock shares are sold for, the worse they do the further down it goes. This kind of investment allows behemoths like BK and other global companies to function, and is also why paying attention to current events is crucial to success in the world of stock trading.

It is also a way to understand how a capitalist society like ours in the U.S. works as far as how our economy affects our government and vice versa.

Check me out next time for an example of how public opinion affects trading.

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