Evaluating company filings
What is covered
What makes a stock go up or down?
First off, the stock market is not a real place you can go into like a Walmart, it refers to a sort of online store where investors can buy and sell partial ownings of companies. Anyone over the age of 18 can start what is called a brokerage account with a financial institution (Such as Schwab or Fidelity). This account allows you to buy or sell shares of companies on the stock market anytime the market is open, which is usually 9:30am - 4pm (ET) except on weekends and most holidays where it closes.
This is a great way for the average person to get a share of a company they otherwise would not be able to afford to have stake in. Any average person would not be able to buy their way into a big company such as Coca-Cola, but with stocks they can buy a very small portion of the company and reap the rewards if it does well or take the hit if the stock falls.
What Makes a Stock Go Up or Down???
Example:
Anyone, at any time, can look up a company's stock and see what the trading price is at that moment as long as the company is publicly traded (more on that later).
If we look at Apple's stock price on July 30th, 2021 (shown in the graph) the price listed is $145.86 and if we look at the price as of April 16, 2024 (Shown on top of the picture) it is 169.38. Meaning if you wanted to buy a share of Apple stock and own a fraction of the company it would cost $145 on Jul 30th and almost 25 more dollars 3 years later on April 16th.
Now, Apple currently has 15.8 billion outstanding shares as of April 16th, 2024, meaning buying 1-2 shares does not change the company in any way, but if you believe Apple will continue to improve into the future, then buying their stock could help you make money over the long term.
The Parts
The best way I have found on how to learn about the market is to first learn about all the moving parts in the stock market and then connect them at the end to make the machine. That way you know how everything works, and any problems or holes can be filled. Below are what I believe to be the 4 biggest and most important moving parts.
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Public Companies - Not every company offers an investor the option to buy their stock on the market...Only companies who have issued an Initial Public Offering (IPO) can be publicly traded by anyone. They have a set number of shares, and some companies even pay dividends. Dividends consist of money the business has generated and decided to pay back to their shareholders as a sort of "Thank you for owning our stock." Dividends are a percentage of the share price, most payouts are around 1-3 percent, and the shareholder receives them in 4 equal amounts throughout the year totaling the 1-3 percent.
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Brokers - A stockbroker is the person who executes your trade on the stock market. When you decide to buy or sell shares this is the middleman that communicates with both sides and sees to it that the trade is ordered and fulfilled.
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SEC - The Securities and Exchange Commission, or SEC, is an independent federal regulatory agency that protects investors, capital, oversees the stock market, and enforces federal securities laws. They essentially make sure everyone plays by the rules.
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Importance of the markets - The stock market as a whole is important for a few reasons:
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It is a great way for companies to raise capital because the buyer is giving money to the company to own some of the company.
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Investors can have their money work for them through exponential growth, compound interest, and dividend payments.
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Provides a way for companies and the public to diversity assets and provides countless ways to make money in every industry imaginable.
Click the video ⬇️
11 sectors
Because of how many companies are listed on the market (about 55,000) investors have broken them all up into 11 sectors.
1. Technology - The technology sector consists of businesses revolving around the manufacturing of electronics, software developers, or products and services that are related to information technology.
2. Health care - Consists of biotechnology companies, hospital management firms, medical device manufacturers, and many others.
3. Financials - Firms and institutions that provide financial services to both corporate and individual customers. This sector consists of banks, investment funds, and insurance companies, among others.
4. Real Estate - Companies invested in residential, industrial, and retail real estate. Accordingly, the main source of revenue for these companies comes from rent income and real estate capital appreciation.
5. Energy - Consists of oil and gas exploration and production companies, as well as integrated power firms, refineries, and other operations. In general, these companies generate revenue that’s tied to the price of crude oil, natural gas, and other commodities.
6. Materials - Consists of mining, refining, chemical, forestry, and related companies that are focused on discovering and developing raw materials.
7. Consumer Discretionary - Consumer discretionary is a term to describe goods and services that are deemed non-essential by consumers. To list, this sector consists of retailers, apparel companies, media companies, consumer durables, and consumer service providers.
8. Industrials - Consists of construction, machinery, fabrication, manufacturing, defense, and aerospace companies.
9. Utilities - Consists of electric, gas, and water companies as well as integrated providers.
10. Consumer Staples - Consists of food and beverage companies as well as companies that create products consumers deemed essential for everyday use.
11. Telecommunication - Features cable companies, internet service providers, wireless providers, satellite companies, and many more.
Why are the 11 sectors important?
The 11 sectors are important because like we mentioned earlier, news and company earnings are very important for stock prices and each sector responds to the same news differently. Take the very high interest rates of about 5.25% as of this writing for example. Real estate companies have been tanking down lately because the price of interest on mortgage rates is so high. This means people do not want to refinance a mortgage and move to a new house and take on a new, much higher interest rate. Because people are not moving and building houses at such a high-rate, real estate company profits are down.
ON THE FLIP SIDE.... Financial companies, such as banks, might have higher profits because of higher interest rates on loans with variable interest rates (change with the state of the economy).
There are always 3 sides to every piece of news, either it moves a stock up, down, or doesn't affect it at all. The job of an investor is to find companies with strong principles that can withstand this crazy world we live in.
Since you know what the 11 sectors are now it is time to teach you what makes each of these sectors tick, what makes them move, and what is important when looking at them as a whole. Check out this quick video below for an overview of this tab and the info on what makes the sectors move.