Stocks
The origin of stocks
In the 1600s, the Dutch East India company ran a huge operation of trade by sending out massive amounts of ships to trade various goods around the world. Because this operation was so expensive, they turned to private investors for money; and in return, the investors would receive a small fraction of the company's profit. The Dutch East India company unknowingly create the stock market! This type of operation still happens today. Companies that you have probably heard of-like Google, Apple, Tesla, and so many more-turn to private investors to constantly share money through stocks.
What are stocks?
You've maybe heard this term from speaking with friends, family, or even heard it mentioned in past lessons; what what even is a stock? Is it something you loan from a bank? Or purchase from a seller? A stock is an investor's partial share in ownership of a company. Investors are taking risks when investing. This is because the profit that they either gain (or even lose) is all determined by the performance of a company. If the company isn't performing well, the value of an investor's stock will go down (and vice versa if the performance is good). To optimize profit, investors strategically choose the company they believe will perform well for an amount of time. They also attempt to determine the amount of time a company may do well in; and sell their stock at that point. If investors believe that an economic downfall will occur, or a lack of demand for a specific product, they may quickly sell their stock to gain at least some profit (before the company loses value), or may even keep it if they believe demand for it will increase as time passes. Companies are heavily reliant on stocks because its market value will decrease if people stop investing in their idea, and will increase, and be able to fund their actions, if more and more people invest in them.
How does the stock market work today?
Unlike the stock market during the 1600s, the stock market today is much more complicated, although it retains the basic ideas.
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Ex: If a newly created company will turn to big investors as part of their start-up. If the investors believe the company has potential success, it will provide an IPO (initial public offering), which launches the company on to the official public market, and the stock market. This is where people like you or me can invest in these companies that we believe will perform well; thus creating profit. For this reason, investors need to strategically decide whether to invest, sell, or trade stocks.
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How do you create your own stocks account?
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These are the following steps in creating an investment/brokerage account:
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Determine which broker you want to use to create your brokerage account (ex: Charles Schwab). A broker is an individual/firm or institution that acts as in intermediary between an investor and a securities exchange. A broker can oftentimes also be affiliated with a bank (ex: Bank of America). You can determine which broker to use based off of different preferences that appeal to you, including:​
- Price​
- Fees
- Reliability
-Location
-Services
-Anything else that really matters to you!
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Once you decide which brokerage firm to use, you can begin filling out an application as the next step in creating your brokerage account. This will require personal information, similar to those of loans, such as:
- Your name​
- Your social security number
- Driver's license
-Proof of certain assets
- Information about your net worth and Employment Status
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Once you create your brokerage account, you can begin to fund it! You can transfer money into your account through an electronic funds transfer (which is linked to your checking/savings account), through checks, transfer money through a wire transfer, stock certificates, and or transfer investments from another broker. For beginners, a minimum amount of money is around 1000 dollars. This will give beginning investors the ability to make strategic decisions while limiting their overall risk.
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Now that you have money in your brokerage account, you can then use it to buy/sell investments such as stocks, funds, bonds, and ETFs.
Key takeaways
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Stocks allow investors to hold a share of the company, meaning they gain profit if the company's performance is good, and lose profit if the company's performance is bad
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Companies first go to private investors, who, if they like the idea of the company and believe it will perform well, will be the first investors (which is the IPO).
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A broker is required in order to create an investment account that you can use to invest, trade, and sell investments such as stocks, occasionally crypto, bonds, and ETFs!
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