Stock Market Basics: Learn the Fundamentals of the Stock Market | Uday Gehani | Skillshare

Stock Market Basics: Learn the Fundamentals of the Stock Market

Uday Gehani, Dedicated to make complex topics easy!

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8 Lessons (32m) View My Notes
    • 1. Welcome to Stock Market Basics

      2:48
    • 2. The Initial Public Offering

      7:13
    • 3. Stocks

      5:20
    • 4. Stock Exchanges

      3:32
    • 5. Brokerages

      4:03
    • 6. Investment Banks

      3:26
    • 7. Regulators

      4:30
    • 8. Class Project

      1:21

About This Class

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Stock prices fluctuate constantly and investing strategies evolve with time. Underneath the rollercoaster of moving prices and mercurial investor sentiment - lies the STOCK MARKET MACHINE - quietly at work. 

This machine doesn't care what the latest news is. It keeps chugging along, doing its job.  

Before you dive into the risky world of investing, it would be wise to understand how this machine works.  

In this class, I attempt to demystify the world of the Stock Market by diving into the various components that make up this finely tuned machine.  

You get introduced to the various players involved such as 

  • Companies who want to raise cash and do so through a process called the Initial Public Offering (IPO).
  • Investors who want to make money and attempt to do so by trading in Stocks. 
  • Intermediaries such as Stock Exchanges, Investment Banks and Brokerages who act as the bridge between companies and investors. 
  • Regulators like the SEC & FINRA who make sure that the system is as fair as possible for people like you and me.

At the end of this class, you'll have a Class Project which will help you tie in the concepts you have learned and test your understanding. 

Good Luck in your investing journey and I hope you enjoy the class!

Uday Gehani 

Transcripts

1. Welcome to Stock Market Basics: you may have heard the saying a picture is voted. 1000 words. While this may be true for most pictures, there are some pictures that tell you a whole lot more than others. Let me show you what I mean. First, we have a picture of Wall Street, a street which has become synonymous with, nor just America's but the words economic engine. You may recognize it from the last time you were watching the financial news or a bunch of Hollywood movies, or you may have seen this one. Ah, picture off a building which looks like a monument built in the 16th century to pray to the Roman gods. But in reality, it's one of the most ad once and sophisticated stock exchanges in the world. The New York stock exceeds at its surface these air seemingly simple pictures. But there's something much bigger and complicated going on in the background. It's the U. S. Stock market at work. If you trade in the stock market without fully understanding it, it's like you're gambling at a casino blindfolded. You might get lucky once in a while, but the odds are heavily set against in this class. My goal is to make your exchange with the stock market much less of a gamble and, more often, investment. And take that blindfold off. I attempt to do that by breaking up the stock market into its most fundamental components. Give you an understanding of how it works in the videos that follow you learn how the stock market helps companies raise a lot of money through a process called an initial public offering or an I. P O. You'll also learn how investors make money and water dominance. Stock price. You learned the roll off important intermediaries such as stock exchanges, investment banks and brokerages, and you learn about regulators like SEC and Finger were in charge of protecting us, making sure that the playground is fair for all investors, big and small. Now this forms the fundamentals of the stock market and learning how these core components interact will help you demystify how the stock market works and allow you to cite step any mistakes that many other investors make. You do a lack of understanding. As an added bonus, you'll also level up your financial vocabulary, making you sound like a financial export at your next party. If That's your vanity. Before we move on, though, I'd like to clarify that this'll class will not teach you any trading. Started these or tell you what? By ourselves. The goal of this class is to make sure that you learn the fundamentals and get those right so that you become a well rounded, confident investor in the long run. My name is Oda Jihani, and I'm your instructor for this class. Thank you so much for watching this intro video and I hope to see you inside the class. 2. The Initial Public Offering: When I was a child, I used to love taking all sorts of gadgets apart, while calculator stories and tape recorders were on top of my list. Disassembling mechanical watches was my field. I know it's common for people who admire watches for their fine craftsmanship, but I remember admiring watches because of how they worked inside the springs, the views, the gears and how they interconnected into play with each other to make the watch hands work with something I found fascinating. Now, like any finally doomed watch, the stock market has its own components that play, making sure that it works seamlessly up close. It's easy to miss out on the interaction between these components. To get the true picture, you have to zoom out of it broadly. The stock market has built up of four components companies who recently entered the stock market to sell their private stock and raise cash. Investors who convention the company stock and make money intermediaries such a stock exchanges, brokerages and investment banks to grease the wheels. And regulators were in charge of maintaining the integrity off the financial system and protecting investors like you and me. Let's get you familiar with each component. By starting with where it all begins, companies any major city across the globe, and you're bound to find some of the same brands across town, you will see the same clothing stores, restaurants and gas stations. You know, the companies that I'm talking about, the soft drink manufacturers, tech giants and the oil conglomerates. But have you ever thought about why these companies have been able to leapfrog the average business and become such global powerhouses? Let's step back in time for a moment and you'll be able to see a common thread that binds the companies that make it really big. In the 16 hundreds, there was a company called the Dutch Eastern. Their company are the Vo See that wanted to trade gold, spices and silks across the globe. But running expeditions was a very high risk venture, not only because of the financial risk but also because of the dangers in war with piracy, disease and shipwrecks. Acknowledging the risks in sensing the enormity of financial capital required to make the company successful, the vio si devising ingenious solution to raise money in the center of Amsterdam, The view see built a trading house for every DOT citizen could go and buy pieces off ownership of the company. Each piece of ownership was called a stock, and it's also interchangeably referred to as a share, as in a share of ownership. Citizens would give the company money now, in exchange for a claim on the profits that the company made in the future. Pretty much every rich man in the Netherlands investor in the video, see, and some immigrants that sort of leveraging the financial capital gain from all of these investors. The VO CE rose to become a powerhouse. It commanded almost 5000 ships over it's lifetime and enjoy huge profits from its trading activities, also making Amsterdam the financials and off the world at the time. Unbeknownst to them, the Dutch had effectively created the world's for a stock market. As the Vio Si became the world's first publicly traded company in history. Fast forward to modern dames. The concept behind the stock market remains the scene. If owners of a private company decide they want to raise money for expansion or future growth, they can raise money from willing investors by listing it on a stock exchange. The process where private owners decided to sell the ownership in a company in exchange for current cash. It's called an initial public offering or an i P o. For many entrepreneurs, taking a company public is done for reasons that go beyond the monetary as taking a company public is considered the ultimate mark of success, one that is accompanied by lots of handshakes and a large bailed. So how does your typical initial public offering work if a company decides to go public? The process begins with interviewing investment banks with expertise in the field. After a series of initial interviews, Bankers place bids for the company's business. In the bids, investment banks highlight the restaurants and why they would be the best fit to meet a company's requirements. While the bill is an important component, companies also consider a range of other factors, such as capable team experience, track record, etcetera and choose the bank. That's the best fit to move forward because of the size and complexity of some of these deals. Many times, companies may also hire more than one investment bank to go ahead with diabetes once a deal is reached on which investment bank gets the business. The I P O Process moves forward in a series of status. In the initial stage, an important document that the company and the investment bank prepare is called a preliminary prospectus, the preliminary prospectus list, the history, management experience, opportunities, risk strategy and financial details about the company. This prospectus is then used to get initial approval from regulators such as the SEC and see if there's enough interest from investors to move forward with an I. P O. At this stage, the investors are extremely high net worth individuals and institutional investors, even only if there's enough interest from the investors in World for the steps are then taken to prepare a final prospectus, establish a price at which the stock will be listed in the market and sold in the normal public like you and me. So why don't most businesses go public now? There are two things to keep in mind here before your torch jump ahead and you start wondering with access to so much capital, why don't most companies think about this in go public? While it is true that going public and give a company access to an entire world of expansion and investment opportunities, taking a company public in malls. Big trade offs. While it allows a private company access to substantially more capital than they could get through private shareholders or venture capitalists, Taking a company public is not easy and has extremely stranger in government requirements. Board during and after the IPO process. An I P O. Is not something that can be accomplished by the typical small business owner. Think your local moment props retails up As an example, the median AIPO in the United States was 100 $8 million in 2019. So to recap this lecture in a natural remember going forward, the primary purpose that stock markets are build on and the reason they exist is to raise capital for companies. And they do that through a process. Gordon I peel. That's why the raising capital part of the stock market is also commonly referred to as primary markets. I'm with a G honey, saying, Thank you so much for joining me in this lecture and I will see you in the next one 3. Stocks: once a stock is made public, the stock is now opened all in the market and allows folks like you and me to get a piece of the action. In general, there are two ways in which investors make money back in stocks. They are capital appreciation or dividends. Let's drive into each one. If you bet on our stock in it does well, the value of your stock will increase. You can then sell these shares at a higher price, someone else in the market blocking in your profits. So, for example, you could buy a share $200 it could go up with $300 in one year. When you sell your sad or $300 you just made a profit off $100 on the share, a whopping 50% down on your initial investment. Another way to make money with shares is through owning diffidence. The concept of dividends work something like this. If a company have invested in, does very well and makes a big profit, it may decide to either keep the money and reinvested in other profitable projects, or it may decide to give some of the profits back to its shareholders. As the rule of Tom, dividends are more likely to be paid by well established companies that no longer need to reinvest as much money back into their business. High growth tech or biotech companies rarely paid evidence because they need to reinvest most of their profits back into expansion and growth. For example, if a company makes $1 million in profit for the year, it may decide to give 25% for $250,000. Is a dividend payment toe all its shareholders? Now? The more you own off a company, the bigger your cash up. But let me put things in context for you here. In reality, companies trading in a public stock market have millions of shares. A capital, for example. Apple has four billion, 829,926,000 shares outside. So if you own dentures, you on 0.2% of the company. Nike, for example, has 1.6 billion shares outstanding, and owning 1 90 share is you 0.6% of the company. Now, owning a company not only gives you a chance to make your money back what comes with a few other benefits, since you are now part of a corporation, no matter how small your percentage of ownership might be, you have Border called voting rights. Voting rights allow you to board and also attained the company shareholder meetings, thereby allowing you to exotically some influence on the company's decision making process . Most companies have a fairly straightforward warning system. One share equals one word. But like I mentioned earlier, with most public traded companies having millions and millions of shares outstanding at any given point in time, you may not be able to change much with your work. Theoretically, though, with enough money, you could buy enough off a company to become the biggest shareholder. And if you manage to pull that off, the bigger your impact on the company's decisions are gonna be. In fact, there are individuals or groups within the world of the stock market whose aim is to Portis a large number of shares in public companies to gain control of the company. These sorts of investors are called activist investors, and they usually have their own agendas that sometimes don't align with the best interests of the average shareholder. In the best case and activist investor targets, companies are mismanaged, have excessive course and can be done more profitably. In such cases, companies undergo Peter of Positive Change as the activist investor ask stuff and valid questions. If things get really severe, the activist investor may even replace some of the management to effect positive change, making the company more valuable. In some other cases, though, activist investors can be very shortsighted, simply seeking a quick buck and high returns on the investment. In these cases, the enter a company to improve profits by slashing jobs, carting R and D budgets and the like, making a quick buck and exiting the company with indifference to what may happen to the company or the people associated with it. If you want to eat up mortarboard, activist investors Google this guy, one of the most famous activist investors who pressure Apple's board to pay out a substantial amount of companies cash to shareholders. Now, not all stocks are created equal, as in, not all stocks have working rates. The world of stocks is divided into common and preferred stocks. Common shares of Warding writes and performs. Chairs don't prefer chairs are called that because they get preference when a company pays a dividend, which is basically a spirit of the profit of the company. Toe the share for on that north. Let's wrap up this lecture. You've covered a lot of ground by making it to the end of this lecture and a big round of applause. By now you're familiar with some of these core concepts the two ways in which people make money in stocks, which are capital appreciation and evidence, What activists investors are and common stock worse is preferred stock. Thank you so much for joining me in this lecture. I will see you in the next one. 4. Stock Exchanges: when we watch a movie re spend little thought on the scores of people behind the scenes, even a lone actor in front of the screen might have 100 people in the background, making that one shark possible. Now you have some food for thought while you're sitting on your laptop training on even a single share. There is a network off Nargis, hundreds but millions of people behind the scenes, making your one trade possible. So who are these mysterious people working in the background, making our lives easier? Let's find out in this lecture. Obviously, there are so many people working behind the scenes, making stock market's workers efficiently as they do that in the interest of time, we can't go or all of them. But let's go over. The three main categories place in a random order. They are stock exchanges, brokers and investment banks. The stock market is a place where buyers and sellers come together to trade stocks, and the stock market is made up off many stock exchangers. While the stock market in the Tome Stock Exchange are often used interchangeably in reality , a stock exchange is a subset off a stock market pretty much every developed country in the world has a stock exchange, and many financial hubs have multiple. For example, the United States has 13 that are too in mainland China, and Japan has five. While in the past stock exchanges used to be a physical location, every transaction happened on paper. With time, all stock exchanges turned electronic and became interconnected, allowing multiple stock exchanges to function as a single unit. Specific stocks get listed on a specific change based on the i p O process we learned earlier, and with trades concentrated in one place, the stock exchange contract the supply and demand off an individual stock, determining its price in real time. Along with the current price, investors use financial reports, current events, historical charts and lots of other factors. Porches or sell stocks, making their prices move up and down constantly, as you may have seen so often on financial new sends. While there are many stock exchanges, the New York Stock Exchange or the NYC and the NASDAQ shot for the National Association of Securities Dealers. Automated quotations are two off the biggest and most popular words. NYC is located on Wall Street and has been around since 17 92 and today it's where shares of big traditional companies like IBM and GE a trader and don't get fooled by the architectural If you step inside, the NYC takes full advantage of the world's latest technology. Now stock exchanges are our business, and like any other business, they have competitors. The NASDAQ is considered the closest rival to the enviros E and compete for the most recognized invaluable of companies. It was formed in 1971 and doesn't have a physical trading floor. As all the trading on the NASDAQ happens electronically. That's where you find that companies like Apple, Microsoft and Facebook because both these exchanges a locator in New York, New York is often referred to as the financial capital of the world. Well, let's conclude this lecturer that, and in the next lecture, let's move on to the next noteworthy intermediary brokerages 5. Brokerages: What's the first image that comes to your mind when you think off a stockbroker? If you're a movie buff like me, images of Gordon Gecko from Wall Street or Will Smith from the Pursuit of Happiness wouldn't be that far off. But while the images of men or women and power suits may have been accurate a few decades ago, it's better to think of the modern based off broker as a computer rather than a person. Let me explain what I mean in this lecture on brokerages. So what is the stock brokerage? If you want to sell or buy a stock, you cannot place an order with the stock exchange directly. Instead, you place your trade through a stockbroker it who then deals with the exchange on your behalf. Brokerages hire brokers. Now that might sound like common sense, but in finance is lying. People often use their two terms interchange. Decades ago, access to brokerages was limited to the VLT would pay hundreds of dollars to brokers for executing a single trade. But with time and the significant leaps that modern technology has made, brokerages are now available to everyone and they're far less expensive than ever before giving us automated access to stock exchanges. While human brokers still handle many trades, especially for large institutional investors, online brokers is now allow. Investors with small size accounts toe also take part in the stock market with a small transaction fee. But not just anyone can become a brokerage on a stock exchange. Becoming a brokerage is quite competitive and requires a brokerage form. The first become a member of the stock exchange. Now memberships cost a ton of money and have very strict regulatory requirements. In the United States, brokerages are regulated by a private, not for profit organization called Financial Industry Regulatory Authority Inc. Or Federal Works under the supervision off another regulatory body called the SEC. And together, the SEC and Finger do their best to insure that the brokerage industry is operating fell. Now every investor is different, a such the brokerage industry has developed to meet the needs off each type off investor. Investors today have a range of options when choosing a brokerage, and your choice of brokerage should align with the type of investor that you work. Common types of brokers is you find in the market are full service brokers is which offer a large variety of options, such as personal advisers, retirement planning, exports, backs, advisers and more. Obviously, the scope of services being offered by full service brokerages makes them the most expensive brokerage option, and the typical fees for such brokerages would range between 1 to 3% off your Allport. For you also have discount brokerages, where the primary objective of her discount brokerage is to execute Jade's at a low cost. As such, discount brokerages have no frills and are primarily online platforms with limited services compared to their full service counterparts. This is a good option if you want a pick your own stocks at a low cost. Finally, with the advent of machine learning and AI, a new type of broker has entered a mix. The Robo Advisor with Robo Advisors. You supply basic information about your investment goals for an online questionnaire, and once the row board wise A crunches your data, they provide an asset allocation mix suitor to your preferences. Written name. Robo advisors automatically re violent your portfolio that's make teens is based on your preferences. If you're gonna pick a brokered, do your due diligence and consider various factors such as fee structure, user friendly interface, research tools and even things like access through mobile app. You can start your research with some popular brokerages such as Fidelity Investments, TD Ameritrade, Charles Schwab and E Trade. Well, folks, that's all of our brokerages. Thank you so much for joining me in this lecture. I will see you in the next one. 6. Investment Banks : Here's some food for talk. Stock markets provide a playground for companies to raise a lot of money, but many of these companies end up failing in the longer. It also allows investors to make it big. But most don't know. While companies and investors face an uncertain rule, there's one intermediary that's literally laughing all the way to the bank. And thats investment banks and investment bankers known for their large payouts and big bonuses. If you didn't know too much about them, you're about to find out in this lecture investment banks of financial intermediaries to help bridge the gap between the people that provide capital and the people that have the need for that capital. Providers of capital include high net worth, individuals and institutions that manage money for others and users of capital, our businesses and industries who would like to leverage that capital to grow and expand their businesses. So how does the investment banking process work? Let's start at the beginning. If a company decides that wants to raise capital, it can go toe traditional retail bank or decide to seek the help of an investment bank. If the company decides to go to the financial markets. With the help of an investment bank, the company holds a series of interviews with several investment banks. First, here's their pitches and invites bids in Western banks, highlight their strengths in their pictures and placed their bids all in an effort to win the company's business. In the process. Larger banks haven't had wanted with their smaller counterparts in deals that involve raising capital. You, too. They're bigger networks, but smaller banks tend to specialize in certain sectors. While companies eventually picked the bank most qualified for the transaction, the process leading to their decision can get quite fierce and competitive. A situation in which two or more investment banks compete to attract the company's business is referred to as a bake off after an investment bank has been selected. Investment banks played the role off advisers and underwriters as advisers. The investment bank offers the range of possible solutions for the company to raise capital , which can intrude both equity financing, which is taking the company public through an I P. O, which we've discussed earlier, or debt financing, where the company takes on debt from investors and then done issues. Corporate bonds, which are basically promises to pay the money back with interest over time. While raising capital is a core function off major and Western banks, the range of services they provide is not limited to raising capital alone. They also play a leading role in facilitating mergers, where two companies combined to form one organization in acquisitions, where one company takes over another company and corporate restructurings. Their company focuses on changing its existing structure with a vision to improve it. In all the ball cases, investment banks have the expertise to play advisory roles, While investment banks vary in size, scope and expertise. Eight of the more popular investment banks are Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, You Bs and HSBC. Well, that's it for investment banks. Thank you so much for joining me in this lecture, and I will see you in the next one. 7. Regulators: every day, millions of people go to the stock market with thoughts of making it big and billions in cash and stock Steen's hand as a result. But unlike some other industries, like banking or insurance, investments in the financial markets are not guaranteed by the federal go. With so much money at stake and so many players and world and no guarantees to prevent investor losses, the government tries to make the system as fair as possible. While the U. S Congress passes an amends laws that affect how the financial industry operates, it has also set up the Securities and Exchange Commission refer to as the SEC to make sure that all the players involved are following the rules. While the SEC is the prime regulatory body with a mission to protect all investors, there is also an other agency called the Finger and these agencies of specifications of duties and responsibilities that enable them to act independently off each other while still working to accomplish similar objectives. The SEC has robust systems in place toe or see any new companies entering the market to raise capital. These companies must follow the most stringent of guidelines during the I p o process. Even after being listed, the SEC has statutory requirements in place that these companies must submit quarterly and annual reports. These reports are closely watched by analysts and investors alike and are crucial for investors to make sound decisions been investing in the stock market. For example, public companies must file quarterly reports form 10-Q and annual reports from 10-K Elektronik Lee, through a system called Edgar Elektronik Gate, are gathering analysis in a few. These reports can then be accessed by the public for research, analysis and investing decisions. The availability of financial reports in this manner is called public filings. The purpose of public filings is to maintain transparency and fairness in securities markets so that all investors get a level playing field while reducing any incidents of fraud or insider trading. Apart from financial reports, companies also provide a narrative account from the executives called the management Discussion and Analysis. The MD any outlines a company's financial results and also touches on future goals and new projects. However, executives take great care during drafting and publishing the MD any as well as their fully over that. The SEC is reviewing these filings, and so they don't want to say anything that may horn them later. Finner, with more than 4750 forms that are members and 634,000 employees, registered to sell securities much like the SEC, Finn rocks or a grass root level to monitor trading activity and protect any illegal trading patterns. Established in 2007 Fender is a private government ought raised, not for profit organization that oversees US broker dealers. It also sets a standard for industry professionals by administering background checks and licensing exams, regulating trading and monitoring compliance off all applicable securities laws. Despite being a private organization, it's still holds the power to find individuals and organizations for unethical behavior and get also revoked. Licenses at the exchange and brokerage levels in usual exchanges have sophisticated oversight functions within their own operations. These include monitoring trades and other steps to see their customers get a Fadi. The exchange is also monitor trading in order to look for patterns that might point to market manipulation. All insider trading brokers is also mandated to keep records and perform certain checks, and ordered the operations to make sure the brokers are operating within acceptable legal and ethical guidelines. All these regulators and protection mechanisms make the securities industry one of the most highly regulated businesses in the United States. But despite all of this regulation, nothing can guarantee that you won't get ripped off. The best you can do from your side is keep increasing your knowledge, which already doing by watching the scores, use common sense and feel comfortable that the people out there looking out for you Thank you so much for joining me in this lecture and I will see you in the next one. 8. Class Project: and low there when you're done, almost done. At least I'm so proud of you for making it this far. And thank you so much for allowing me to be a part of your journey. Now, before we say a final goodbye, I want a solid a fire knowledge, even for them, by learning about how the stock market works in practice nor distant eerie. So I'm going to give you a project. Think of this project like a final exam. And for your final exam, you can pick from one of these three options. I want you to Google and read about one of these three topics. The Alibaba AIPO, which is one of the biggest typos in history. Colic a hand and his actions as an activist investor with Apple or Martha Stewart's trading scandal, and how she got into trouble with the regular. Once you're done with any of these topics, I want you to write the name of the person you chose as their title in your class project and write down one stock market inside the Cube gain. By leading their story as your project submission, you will not believe the insights that you gain by reading real life case stories. So I'll be waiting for your submissions. And before I leave for one final time, this is Bodega Hani signing off, thanking you so much for joining me in the skill share class and I hope to see you in the next one.