We all start at the very beginning on our investing journey – understanding the stock market.
Before you start investing, you need to understand the stock market and how it works. But what if you’re a complete beginner? Don’t worry – this comprehensive guide to understanding the stock market is for you! We all start here, so try not to compare your journey to others who appear to be advanced. See these individuals as inspiration, and just remember they started at the same point as you.
The worst thing you can do is invest in something you don’t understand. Start slow and build up your knowledge base.
This guide is a long read, so grab some coffee (or wine) and get comfortable!
Financial Lingo of the Stock Market
You’ve probably heard your sugar daddy talk about his investment portfolio in great detail, but what is the stock market exactly?
There are several terms and definitions you should get familiar with. A valuable resource for beginner investors is Investopedia. The site was originally recommended to me by one of my university professors, and his suggestion has been worth its weight in gold.
In fact, all definitions below are adapted from Investopedia’s Dictionary. You can even subscribe to their “term of the day” and have a new financial term sent to your inbox every morning. Click here to sign up!
Below are the basic terms and definitions you need to master to have a thorough understanding of the stock market.
Market Terms and Definitions
Stock Market – a collection of markets and exchanges where both retail and institutional investors come together to buy and sell shares of publicly-held companies. Also referred to as a stock exchange or equity market.
Stock Exchange – the buying and selling of shares take place through formal exchanges that operate under a defined set of regulations. The term stock market and stock exchange are often used interchangeably, so you don’t need to feel confused if you hear two different sugar daddies use two different terms!
Each country has their own stock exchange, and multiple exchanges can operate within a country and/or region (a good example of this is the United States).
Some of the top stock exchanges in the world (with their stock ticker and respective country) are:
- New York Stock Exchange, NYSE (United States)
- Nasdaq, NASDAQ (United States)
- Toronto Stock Exchange, TSX (Canada)
- London Stock Exchange, LSE (United Kingdom)
- Euronext, ENX (even though their headquarters are located in Amsterdam, Euronext is the largest stock exchange in Europe)
- Shanghai Stock Exchange, SSE (China)
Primary Market – where publicly-held companies issue shares to the public for the first time, often through the process of initial public offerings (IPO). When companies want to raise capital from investors, they issue new shares.
Secondary Market – After the initial sale of new shares is completed in the primary market, the secondary market is where investors buy and sell securities they already own. These trades are called secondary simply because they are one step removed from the initial public offering. The secondary market is where the bulk of trading occurs, and is what most people think of as the “stock market.”
When in doubt of a term, just ask you sugar daddy! He’ll be more than happy to mentor your investment knowledge. The best sugar relationships include true mutual interests, even if you’re just a beginner at something. You have something in common to talk about, and you’re learning how to create an additional income stream for yourself. Investing is a win-win situation.
The Two Categories of Investors
Retail Investor – a non-professional investor (such as you and I) who purchases securities for their own personal investment accounts. Also called an individual investor.
Institutional Investor – a person or organization that trades securities in large enough quantities that they qualify for preferential treatment and lower trading fees.
Some examples of institutional investors include: mutual funds, pension funds, insurance companies, money managers and investment banks.
Types of Securities Traded in the Stock Market
There are many different types of securities you can purchase in the stock market, but in the beginning just focus on getting to know the most common ones. Let’s start with the definition of a security.
Security – an asset that holds some type of negotiable monetary value.
The 3 main categories of securities are stocks, bonds and options.
Stock – a security that represents ownership of a fraction of a corporation. Individual units of stock are called shares.
Bond – a fixed income security in the form a of loan made by an investor (you and I) to a borrower (typically corporations or governments). You recoup your original loan (the principal) plus interest (the coupon rate) on a specific date (the maturity date). Although you can purchase bonds in the stock market, most trade privately.
Option – an options contract gives the holder the right (but not the obligation) to buy or sell a particular security (such as a stock) at a set price within a specific time frame. Option traders tend to be more advanced investors as options contracts have a bit of a steeper learning curve than stocks and bonds.
Exchange Traded Fund (ETF) – a collection of investments (such as stocks and bonds) that trade on an exchange, usually passively managed by a computer algorithm.
Initial Public Offering (IPO) – when a private
Market Index – although you cannot invest directly in an index, they are a hypothetical portfolio of securities representing a particular market or market segment which serve as a benchmark.
Some of the most common stock market indexes are:
- Dow Jones Industrial Average, DJIA (United States)
- Standard & Poor 500, S&P 500 (United States)
- Nasdaq Composite Index, NASDAQ (United States)
- Standard & Poor/Toronto Stock Exchange, S&P/TSX (Canada)
- Deutscher Aktien Index, DAX (Germany)
- Hang Seng Index, HSI (Hong Kong)
Easy ways to grow your understanding of the stock market on a daily basis
Now that you’ve mastered the basic definitions, it’s time to observe those terms in action. The more you expose yourself to this new information, the better. Thankfully, there are a few easy ways you can incorporate the stock market into your daily routine.
Consumer News and Business Channel (CNBC)
Trading hours in the main North American stock exchanges are Monday to Friday, 9:30am – 4:00pm EST. If you live in Vancouver, Canada, that means tuning in from 6:30am – 1:00pm PST if you want to watch the live coverage.
During trading hours, CNBC’s live coverage takes place on the floor of the New York Stock Exchange (NYSE). The ringing of a physical bell marks the official opening and closing daily trading sessions, known as the opening bell and closing bell. This practice is largely symbolic as most trading takes place electronically.
You’ve probably heard your SD talking about current events that involve a company he owns stock in. The news, global events and company and industry specific news all affect stock prices. Why? A single event causes two emotions in investors: greed (to buy) or fear (to sell) in anticipation of the event’s outcome. No one can accurately predict the future, so investors have to make an educated guess based on their prediction of future share price in light of the event.
A single event can be good for some companies and bad for others. Take Covid-19 for example. It caused Zoom’s stock price to rise (due to the demand of everyone working from home) and airline stocks to drop (from no one travelling).
Being aware of what’s going on in the world is important because current events impacts the price of stocks. However, you don’t need to watch the news all day. Tuning in once a day to educate yourself is enough, arming you with worldly knowledge you can use in date conversions.
CNBC isn’t just on TV. There are multiple ways to benefit from their network.
Add CNBC to your cable package
Subscribing to CNBC was the best piece of advice I received from one of my sugar daddies, as I mention in My Sugar Story. I watched CNBC for 2 full years before I felt comfortable enough to start investing in the stock market.
Depending on your cable provider, CNCB can be offered as an individual channel or as part of a news package.
Read CNBC online
Check out https://www.cnbc.com/ if you prefer to get your news and stock markets updates by reading online.
Download the CNBC app to watch or listen live
If you live in the United States, you have the option to watch or listen live on the app. Unfortunately, Canadians only have the option to listen live at this time. Either way, the app is a great way to help expand your understanding of the stock market.
You can also personalize your newsfeed, check current stock prices, enable breaking news notifications, listen to their podcasts and more.
Use social media to your advantage
While you’re scrolling through outfit inspiration, fitness tips and sugar baby lifestyle advice, add in an investment post or two to get a well-rounded social media experience.
Just start with a few accounts to help you understand the stock market – you don’t need to overload your feeds at first. My two favourite are:
Start a Watchlist to observe potential stocks
Before you invest actual money, it’s a good idea to observe how a stock cycles. The best way to conduct your research is through a Watchlist – a list of securities you want to monitor to potentially invest in.
One of the easiest ways to create and monitor your watchlist is to download an app. The Stocks app comes pre-loaded on Apple devices. You can add as many stocks as you want to your Watchlist, and it’s completely free to use.
Pick a few companies you’re interested in and watch how the stock price go up and down. I like using an app because the latest company news articles pop up when you click on the stock. As mentioned above, news is an important factor that influences the stock price, such as when company leadership changes.
Read books on investing to increase your understanding of the stock market
Reading is essential on your self-improvement journey, so books on investing should have a place on your bookshelf. Set a goal for yourself with reading: aim to read 1 chapter per day. Unshakeable by Tony Robbins has 9 chapters, therefore, you could finish it in 1 week and 2 days!
There are tons of books on investing, and I think the best ones give a holistic approach to securing your financial future.
Get started by reading these two books on investing:
- Unshakeable – Your Financial Freedom Playbook by Tony Robbins
- The Intelligent Investor by Benjamin Graham
Both of these books are on my Sugar Essentials Book List.
Always follow the golden rule of investing: never invest in something you don’t understand.
Investing in the stock market can be intimidating at first, but all it takes is time to learn. Start slow and build a solid foundation.
What helped you to understand the stock market? Comment below!