Stock Market 101 (Part 1) – Ricky Yu ’17

This week, there wasn’t much progress with the competition, so this week’s blog post is going to be focused more on the academic side of my independent project. My online course this week focused on the stock market, so I thought that it would be good to write the blog post to inform you guys about the different types of stocks in the stock market and some basic knowledge on it.

stock-market-3

First of all, every stock market opens Monday through Friday, at 9:30 am and closes at 4:00 pm EST. However, it does close for major holidays on the calendar such as Christmas, or in the unfortunate event of a major disruption in the system.

If you’ve ever spoken to somebody who is into trading or knows a little something about the stock market, you’ve probably heard them say the ‘S&P 500’ quite a bit. The S&P 500, short for the Standard and Poor’s 500, is a collection of 500 stocks that represent the performance of the large-cap universe. The list of 500 stocks is chosen by economists, thus resulting the S&P 500 to be thought as one of the most accurate gauges for the performance of the American stock market.

Now you might be wondering, what is the ‘large-cap universe?’ In terms of the stock market, the large-cap is short for large market capitalization, and refers to the ‘universe’ of companies whose market capitalization exceeds the value of 5 Billion US Dollars. Since the S&P 500 only includes companies in the large-cap universe, there are other versions of the S&P indicators that reflect the performance of the small and mid-cap universes.

So what kind of stocks are there you ask? The stock market is mainly divided into two large sectors: common stocks and preferred stocks. The common stock is what is widely known. It represents a part of the company, and gives the owner 1 vote per stock owned to elect the board of executives of a company. The common stock is, I would say, one of the most profitable stocks out there in the market, due to capital growth resulting in a higher yield for the stockholder. However, there isn’t a gain without pain. The common stock holds the highest risk, since the liquidation or bankruptcy of a company could lead you, the stockholder, to not be able to receive any money until all the other priority stockholders are paid their fair share. The preferred stock is a little risky in that you are one of the first ones to be paid when a company goes bankrupt, but has its own disadvantages, such as your dividend being fixed no matter the growth rate of the company, and your voting rights not being as strong as that of a common stockholder.

Companies can also classify different stocks into various levels to ensure that the voting right for the company remains within a certain group of stockholders. A stock that is of higher class than the other, yields a bigger voting power than a stock that is of a lower class. In the presence of two different classes of stocks, most companies divide them into Class A and Class B and these are noted in their ticker symbols, which are the symbols for stocks of different companies, with an alphabet a or b at the end of the company’s ticker symbol.

Next week, I’ll tell you guys more about the different methods of trading various types of stocks.

 

 

Image source: http://faganasset.com/wp-content/uploads/2015/04/stock-market-3.jpeg

One thought on “Stock Market 101 (Part 1) – Ricky Yu ’17

  1. tkbarnet

    Other than fitting in the large-cap universe what methodology do economists have when picking the stocks in the S&P 500?

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s