Section-1
Intro
This section covers the foundations of the stock market and information about the stock market.
This page covers the main topics of previous meetings.
Contents of this Section
Preview what is ahead.2: Share Prices
3: Market-Cap & Volume
4: Volatility & Indexes
For intermediate to more advanced traders, this section would serve only as a refresher.
The Stock Market - (Core)
The stock market is a massive financial network that allows people to buy and sell different companies.
The stock market is comprised thousands of companies, allowing anyone to buy or sell portions of companies.
Since many companies are huge, some having valuations in the $100,000,000,000’s, the stock market allows anyone to purchase and exchange small shares of these companies. These shares represent your (partial) ownership of these companies, and every share carries a monetary value.
A Company = A Stock
The Sole Gole:
The goal of investing is to invest in shares of companies you believe in, hoping that the value of the company increases, in turn causing your shares (holdings) to increase in value.
Throughout the year, we will discuss strategies on successfully analyzing good investments (stock choices)
Market-Cap
Market-cap is an important piece of information to consider before any investment decision.
Market-cap represents the total value of the company, Market-Cap = Valuation.
Why Is It Important?
Market-cap determines the company’s size, based on what the stock market believes the company is worth. Paired with (*)quantitative data, it lets us measure the fair value of a stock.
*(will be covered when we discuss Fundamental Analysis)
A key thing to know:
Share price moves proportionally to market-cap
This means a +20% jump in share price means a +20% jump in market-cap
If a company has 1 million shares outstanding and the share price goes up from $100 to $120, the market-cap would increase as follows:
- Initial market-cap: 1,000,000 shares * $100/share = $100,000,000
- New market-cap: 1,000,000 shares * $120/share = $120,000,000
This shows how a change in the share price directly affects the market-cap.
Volume
Volume is the total # of shares traded within a day. Stocks with higher volume are more active and more well-known.
Volume isn’t all that important.
Volatitility
Volatility is important, though, as it measures a stock’s risk. A stock/company with a higher volatility moves more rapidly with bigger %change.
For example:
A stock with a lower volatility may see ~1-2% movement each day,
while a stock with a higher volatility could see >5% movement.
If you prefer your portfolio to aggressively grow VS remain stable, volatility is a key factor to consider.
Indexes
Indexes are an incredibly important part of the stock market.
Indexes generally measure the overall stock market’s performance, tracking hundreds of companies at once. You could almost think of them as a broad basket of stocks
The three major indexes are the: S&P 500, NASDAQ, and DOW
The S&P 500 tracks the 500 largest US companies.
The NASDAQ tracks technology and software companies
The DOW tracks the 30 biggest US companies
Indexes are steady and stable investments that rise slowly over time. They are a great alternative to cash if you dislike the risk associated with choosing specific stocks/companies.
— Temporary Conclusion —
You’ve finished reading this section for “Important Stock Market Basics & Review”.
This section covered the essentials related to stocks, which will be crucial for our future material and discussions.
Last Revised: 1/8/2025