An Intro to Stock Market Investing For Beginners | David Eaves | Skillshare

An Intro to Stock Market Investing For Beginners

David Eaves, YouTube, Trading/ Investing, etc.

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8 Lessons (18m) View My Notes
    • 1. Intro To The Course

      0:26
    • 2. What is the Stock Market?

      1:09
    • 3. What is a Broker and Why You Need One

      1:58
    • 4. What Are Stocks

      1:44
    • 5. Why Companies Go Public

      1:47
    • 6. What are ETFs and Index Funds

      2:00
    • 7. High Frequency Trading

      2:58
    • 8. BONUS VIDEO: Stock Options

      5:35
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About This Class

The stock market can be one of the easiest ways to build wealth and is very important when it comes to long term wealth planning, in this course I wanted to clear up, answer and explain common questions and thoughts about the stock market. 

This 15 minutes class will cover:

- How the stock market and the exchanges that make it up work

- What brokers are why you'll need one 

- What stocks, ETFs, and index funds are

- Why companies go public

- BONUS CONTENT: High-Frequency Trading and how it can affect the average investor

If you have any questions feel free to message me on instagram @davideavesofficial 

If your interested in more content from me, my YouTube channel covers similar content in a more broad approach. https://www.youtube.com/channel/UCv6FSVDrGAGblUHbkhAtNfQ?view_as=subscriber\

Transcripts

1. Intro To The Course: welcome everyone to my intro to stock market investing. Course you guys don't know who I am. My name is David Eves. I have a YouTube channel with about 10,000 subscribers where every week I make videos on personal finance, credit cards, investing and things like that. So in this course, we're gonna be going over what the stock market is, how it works. Stocks E T F s what a broker is, why you need a broker and a few other things. So if you guys do to start to enroll in the course, and with all that being said, I will catch you guys in the first lesson. 2. What is the Stock Market?: So in the first lesson, we're gonna talk about what the stock market is, and it's actually pretty simple. It's a market made up of multiple exchanges, where people go to buy and sell stock and other securities within companies or based around companies, and pretty much every developed country has one. But for the purpose of this video, we're gonna be focusing on the United States. So there is no one stock market per se. But there is quite a few exchanges that all kind of make up the term stock market. The two largest of these exchanges are the New York Stock Exchange and the NASDAQ. If you guys ever really watched the news, you've probably heard of these. But there are also dozens of smaller exchanges. But for the most part due to technology, you're not really gonna notice the difference between the New York Stock Exchange, the NASDAQ or you know any of those other smaller exchanges in these exchanges, their actual physical places within a lot of times, New York or other large cities throughout the country. But obviously, if you're a regular person and you want to go buy stock, you can't just walk onto the floor of the New York Stock Exchange and start purchasing shares right pretty much all of these exchanges. They're going to require you to be a member, which cost a large amount of money as well as there's a lot of regulation around being a member and how these firms are regulated. And that's exactly why you'll need a broker, and that's what we're gonna be talking about in the next lesson. 3. What is a Broker and Why You Need One: So what is a broker? If you watch sporting events like the NFL or sometimes MBA, you guys will probably have seen ads from one of my favorite brokers, and that is TD Ameritrade. Now. You also probably in and out from E trade. I know they also sponsor a lot of NFL events, but TD Ameritrade is really my favorite broker. However, there are tons of other options out there like we Bull, Robin Hood, Charles Schwab and so on. But in order to be a broker, they have to actually become a member of each exchange. But in order to become a member, they have to pay large membership fee as well as deal with all the regulation around stock exchanges. But they do all of this that way. They can provide services to customers in the form of buying and selling shares and really holding money for those customers. Up until recently, pretty much every broker charge their customers a fee in order to send shares to the market or buy shares from the market. However, over the last 20 to 30 years, commissions have become a much smaller percentage of brokers. Actual earnings in the case of Charles Schwab commissions counted for less than 10% of their actual revenue. Most of the revenue came from the UN invested cash that their customers had in their account that they would basically earn interest on. And they usually paid out very, very, very little interest to the investor, thereby netting the difference. And that's really what spawned Robin Hood there. Free brokerage. That doesn't charge you any fees to buy and sell stock, but they do make interest on your UN invested cash. And just recently, in late 2000 and 19 most of the large brokers like TD Ameritrade, Charles Schwab, E Trade Interactive Brokers all of these companies actually reduced their commissions to $0 in order to compete with Robin Hood. So now, as of recently, free has pretty much become the standard across the stock market. It doesn't really cost anything in order to buy and sell shares, and the brokers pretty much make most of their money from the UN invested cash that you have sitting in your account. However, there is another way they make money and we'll go over that in the bonus section of this course at the end But the real take away here is that brokers are the direct link to the stock market. And if you're an individual investor, you're gonna need a broker of some kind in order to buy and sell shares on the stock marke . 4. What Are Stocks: So now let's talk about what stocks are as well A Z T ETFs and index funds. So this should be somewhat self explanatory. But a stock is basically a share of a company. So if a company had 100 shares total and you owned one share, you would have 1% ownership in that company. Now, obviously, in the case of public companies, it's not that simple just because they might have hundreds of millions of outstanding shares. In the case of Apple, I believe they have around 300 million outstanding shares. That basically means if you buy one share of Apple, you will have won 300 million of Apple. But in the case of some smaller companies, that might only have a few 1,000,000 shares. And if you were to buy, say, 1000 shares, you might have 0.1% of that company. And when he owned shares of a company. If the company goes up in value based on what the market actually sees than your shares will go up in value, that could also go down in value. If the company performs badly, and if the company were to declare a dividend per share than you would be entitled to that dividend based on a per share amounts. So if you want to share afford at $10 per share and they declared a 30 cent dividend, say you own 10 shares, you would get $3 worth of dividends from Ford Motor Company. However, I do want to clear something up here about dividends. A lot of people have this idea that they could just go by Ford the day before the dividend , collect the dividend and then sell the shares the next day, basically collecting the dividend and not really taking on any risk. That doesn't really work because when the dividend is declared that money is taken from Ford's accounts. So four was valued at $10 per share and they declared a 30 cent dividend. Then the next day Ford is gonna open up at $9.70 so 30 cents less to account for that defend. So you would basically just take a 30 cent loss on your equity and collect the 30 cent dividend so you really don't get anywhere. It's exact same position you were in before 5. Why Companies Go Public: But at this point, you might be wondering, Why do companies go public? And it really depends. It's different for every single company. But when we're talking about startups like maybe Tesla or Facebook or one of these companies, if we look at a lot of the hot tech stocks, like maybe Snapchat, they went public recently about 2 to 3 years ago. The reason they went public is they needed a few $1,000,000,000 to continue operating their business since they were operating at a loss. And it's very hard to get billions of dollars from the private market. The private market is basically where you go pitch, you know, John on investing in your company or John's Hedge Fund or Johns Private Equity Fund. Eventually, when you get too big, like Snapchat or uber or Facebook, the private market doesn't really have enough money to give you, at which point you can take the company public and collect money from outside investors. I e. Me, you, John, your neighbor. You know, everyday people who decide to invest in this company because they see value another reason companies go public. In the case of maybe Macy's. Maybe they've always made money. They were making money when they went public back in the day. But the reason they went public was so that John the founder, maybe he wants to sell 20% of his Macy steak. He could actually just go to the public market and sell those shares right there, rather than having to find someone who would be willing to take 20% of his steaks that don't violate any kind of company agreements or anything like that. So eventually, when a company makes a lot of money, it eventually becomes necessary for the founders in the investors to pull their money back out of the company. And going public allows them to do that when you are operating at such a large scale, like maybe Macy's or Walmart er, one of these huge companies. So the main take away here is that companies generally will go public in order to give an exit strategy for investors or to raise money form or investors. That way, they can continue to operate in the case of Snapchat or Facebook or one of these companies 6. What are ETFs and Index Funds: Now I get this question quite a bit. What's an E T F? What's an index fund? What? What are these things? So une TF is an exchange traded fund? What that basically means is it's a fund made up of a lot of shares of a lot of different companies that all trade together. So you buy one share of this and you'll have a small piece of a rise in a small piece of Walmart, a small piece of 18 tee, a small piece of waste management and so on for whatever positions are held within that E t f generally e T F two designed to spread risk across a specific section of the market. So sometimes you might find a health care e t f. This is going to invest in, you know, maybe the 10 largest healthcare companies. But they're all gonna be healthcare company, so you're highly exposed to healthcare itself. But you're also diversified when it comes to the actual amount of health care companies that you own. Or maybe they're a tech e t f where they're gonna hold Facebook, Google, Amazon, Microsoft and so on. You know, these are gonna be highly exposed to technology. But you can actually buy one share of this CTF and you're gonna get exposure to all of these different companies on index fund, on the other hand, is pretty much the exact same thing as an E T f. Except for it's gonna track an index. So something like the S and P 500 of the Russell 2000 or the Dow Jones these air funds that are going to track those because the actual S and P 500 you can't directly invest in it's just an index. It just tracks the prices of these companies you know you can actually buy in S and P 500 chair. In order to do that, you would need to buy an index fund for the S and P 500 like maybe sp y or bang guards. Vo these air what you would actually invest in if you wanted to have exposure to the S and P 500 as a whole or the Dow Jones as a whole. But you can't directly just go by the Dow or just go by the S and P. You have to buy an E T f like S P Y or something like that that basically tracks the S and P 500. Exactly. But you're not directly investing in it because it is just a benchmark or, you know, just a tracker. Really, it's not an actual asset. Where's the TFC are an actual asset? 7. High Frequency Trading: now for some bonus content. I want to talk a little bit about high frequency trading and what it is to earlier when I said Robin Hood and TD Ameritrade and all these brokers have gone to a commission free business plan. And I said that the main way that they make money now is pretty much just from collecting interest on your UN invested caf. That is true. But there's also another way that these brokers make a lot of money, and it actually affects the individual investor whether they know it or not in the way they do that, it's called high frequency trading. High frequency trading firms are firms that are basically ran by mathematicians that set up computer programs on a lot of stuff like that that actually automatically trades for them. They generally will, making it one sent in a matter of three seconds on a 1,000,000 shares or something that you do a lot of trading very, very, very quickly and scalp. You know, tiny percentages off of each one, and the way they get those tiny percentages is when you send an order through Robin Hood or TD Ameritrade. Most of the time, those orders are actually going to be sent to their high frequency trading partners who actually pay them a fee in order to get that order flow. But they're going to send that order to them and their computers. They're going to decide if they want to buy it. If they do, then their computers will buy it and boom, If they don't want to buy, then they will send it to the actual direct market. Now the problem with this is it actually takes a second for you know, your actual order to go to the high frequency trading firm and for their computer to either rejected or purchases. So if they reject it, then it has to go back to the actual exchange, at which point it takes more time while you know, on the actual exchange, trades could have been going through it the price that you set. But now they're not because the market has fell a little bit and all of a sudden you lose a little money because they decided to take a little detour to the high frequency trading firm. So that's a big caveat of Wall Street and something to really keep in mind. Robin Hood is actually the broker that since the most orders to high frequency trading firms, however, now that we have more and more companies going to $0 commissions, I think you're going to see more of these Larger companies like TD Ameritrade and Charles Schwab actually do more business with these high frequency trading firms, at which point it will hurt their actual customers a little bit. That being said, you are getting completely free commission trading rather than paying $567 per trade toe overall. I think it's a good deal the have. But at the end of the day, you do have to consider that, you know these companies are going to send your order there, and that might cause you to lose money here and there. I appreciate everyone checking out this course. If you guys have any questions, feel free to message me on Instagram at David Eves. Official. If you guys want to check out my YouTube channel, I will leave these link in the description and for the class project. I really like you guys to download some kind of simulated trading app like TD. Ameritrade has their paper money platform. I will leave a link in the description for that. And then we will actually has their own simulated trading platform as well. So if you guys download these platforms, you can actually get an idea of how the market works and actually go in and trade with fake money, but really get some experience in the market. So, you know, just a suggestion. You don't have to do it, But that's what I'm saying. The class assignment is so anyway, I hope you guys did enjoy and I will catch you guys later. 8. BONUS VIDEO: Stock Options: Ok guys, so it's been a year now and I figured this course is a little light on content, so I figured I would add this bonus video where we are going to be talking about stock options very briefly. So a lot of people don't know that there are multiple types of securities. Stocks are generally the main one that pretty much everyone out there is going to know about, but there's lots of other ones like options, futures, Bitcoin, I, I presume is kind of considered a security. It's, it's more of a currency, but it is treated like a security on a lot of exchanges. But in this video we are going to be talking about stock options as I think they are the most important to know out of all the other securities aside from stocks. And that's because you can profit from movements in stocks with options in ways that are pretty much impossible when it comes down to individual shares themselves. So to get started, a stock option is essentially a contract to buy or sell stock at a certain price on or before a certain date. Stock options always go in 100 share increments. And I'd call option for example, let's say you bought a twitter call at a 100 strike price for two years from now. In order to buy this, you are going to be paying a certain amount of money, I would imagine for two years out and a 100 strike you're probably going to be looking, on one hand, the probability of that being over $100 is pretty slim, so that's going to lower the price considerably. But options do have a lot of value when it comes to time. So if you have two years left, you're still going to pay a decent amount of money. So in this case, you might pay $200 for this option. Now this 100 Call gives you the right to purchase shares of Twitter for $100 anytime before two years from now, which it is the end of 2020, December, so it would be December 21st or the closest Friday, standard contracts and on the third Friday of every month. However, for a lot of companies, there are weekly and quarterly contracts as well. So let's say you bought the weekly two years out December 21st or the closest Friday to that, I would imagine 2022. So the way you make money from options, if you pay $200 for that, right? And Twitter is at $200.3 weeks before then, your contract now has a $100 and intrinsic value because you're still allowed to buy these shares at the $100 price. Twitter could be a million dollars a share and you still get the buy them at $100. So as you can imagine, if Twitters at a $150 and you get to buy a 100 shares at $100, it's going to cost you 10 thousand plus the $200 that you paid for the contract. So your total investment is $10,200. However, you now have a 100 shares of Twitter, which are trading at a market value of a $150, making this position worth $15 thousand. So you turned a $200 investment into around 5 thousand. As you can imagine, that's an insane profit, something you could pretty much never make on a real stock unless we're talking about Tesla, for example. But outside of that, that's how options work. Now purchasing a call is going to be the most standard and easiest example. So we'll talk about purchasing a put option as well. A put option is a contract to sell stock at a certain price. So if you think a stock is at $50 today and you think it's gonna be at 20 next year, you could buy a put option. Now you have the right to sell stock at $50. And because you don't own the shares, if in six months, that stock is at $30. Well now you have the right to sell stock at 50, netting you $20 because you can buy those shares at $30 on the open market and sell them back at 50 because you bought the right months before. So that's kind of an introduction into options and how they work. They're much more complicated than that. There are spreads you can do. You can actually make money from the stock doing nothing. You can make money from the stock going, you know, $10 or $10 down. Either way it goes as long as it goes $10 in either direction, you make money. There's a lot of ways to make money when it comes to options. So I think they're very important. And a lot of cases can be a useful tool. There are oftentimes used as hedges as well. So if you have, say, a $100 thousand in Apple stock, but there's something coming up. Maybe earnings may be some kind of press release, maybe, you know, some kind of thing that makes you a little worried about your a $100 thousand investment right now, or a $100 thousand in Apple stock would be somewhere in the neighborhood of 500 shares. You could buy a put option at $200, right where the stock is right now for say, $800 or, or it's gonna be $2603 thousand for two weeks out. If, if you think you're worried over the next two weeks, if Apple absolutely poops the bed, and they go down to $80, protected yourself because you spent $2 thousand and you save yourself $20 thousand worth of losses because you can still sell your Apple stock at the market price that it was two weeks prior or whatever the strike prices that you purchase. And that's how options were originally intended to be used to pretty much hedge your bets against a large position. However, nowadays there being used to trade pretty much everywhere and you do a million things with options and we cover all of that in my stock options course. So if you guys want to check that out, feel free to do so. Thank you guys for checking out the course. If you guys have not already left a review, please be sure to do so. It helps out a ton. And with all that being said, I'll catch you guys next time. Peace.