Intro. to the Stock Market

1. What exactly is a stock and why do companies sell stock in the first place?

A piece of stock represents partial ownership of a company and so, when someone invests in a certain company, they are buying part of the company. Companies sell stock in order to build interest on invested amounts. With all the money from investors, a company can expand and increase profits. The increased profit benefits all the stockholders who are also partial owners of the company.

2. What is the difference between a public and a private company?

A private company only sells stock amongst its employees, while a public company sells stock to investors all over the world.

3. What is the Dow Jones Industrial Average?

It is the oldest continuing US market index, created to gauge the performance of the industrial component of America's stock markets. The average is made up of 30 of the largest and most widely held public companies in the US.

4. What is a blue chip stock?

The term "blue chip" refers to a stock that is in excellent financial shape and firmly established as a leader in the market. Often referred to as "bellwether issues", these blue chip stocks generally offer dividends and are favorably regarded by investors.

5. What is the New York Stock Exchange and the NASDAQ?

The NYSE and Nasdaq are both stock markets, but are very different in the way that they operate. The NYSE is a place where transactions are taken in a physical place, while the Nasdaq market is located on a telecommunications network, where investments are made electronically. While the Nasdaq exchanges in the dealer's market, wherein investors are not buying and selling from each other but from a dealer, the NYSE exchanges in an auction market, where individuals are typically buying and selling between one another as in an auction. The Nasdaq is also known as a high-tech market, attracting investors within the Internet and electronics. The NYSE is seem as a more well established market that includes many of the blue chip firms and industries.

6. What is a mutual fund?

A mutual fund pools money from investors in the form of cash, bonds and real estate and then the mutual fund company hires money managers to invest this pool of money. In buying a mutual fund, investors will share the profits and losses of the investment portfolio with other investors in the same pool. This mutual fund allows others to invest for you, while spreading out the investment risk (diversification).

7. What are some of the biggest companies on the stock market, how much is their stock?

General Motors - GM - $26.30
Google - GOOG - $504.14
Apple - AAPL - $122.14
Microsoft - MSFT - $28.12
General Electric - GE - $34.23

8. What is the PE ratio of a stock?

It is an indicator for how much a stock is worth. The PE ratio is the price of the stock divided by the earnings per share.

9. What is a stock dividend?

Before I can explain the purpose of a stock dividend, i must first explain what a dividend is. A dividend is a taxable payment declared by a company's board of directors and given to its shareholders out of the company's current profits. This dividend can take the form of a stock dividend, which is paid as additional shares of stock rather than as cash.