Hola!!!
It’s a long flight from New York to Sydney. Silence prevailed as everyone slowly dozed off to sleep around, except 12-years-old Billy, who was observing 55-years-old Warren, who was busy going through several colorful graphs and charts in his iPad in a low light setting, not knowing curious Billy was also trying to see, what’s in those charts with his lovely blue eyes. When Warren finally observed that his cute co-passenger found something interesting in his everyday work, he smiled at him and showed him the tablet screen and increased its brightness, that’s when little Billy found out, that it had a lot of numbers along with those colorful graphs and then the following conversation takes place between them through the long haul flight as follows:
STOCKS
Warren: What are Stocks?
Billy: I don’t know, you say
Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called “Equities.” They are live for trading during regular business hours 9 a.m. to 4 p.m. local standard time.
Warren: Where are they trading at?
Billy: Maybe “livestock market”
These are normally traded on stock markets live like in NYSE, BSE and TSE.
But you even wanted to know what livestock market is, feel free to raise cattle farm, that’s what it is.
Warren: Why do people buy stocks?
Billy: Is it because it makes them look cool!!!
There are several other reasons to purchase stocks. Here are just some of them:
• Capital appreciation, which occurs when a stock rises in price.
• Dividend payments, which occur when the company distributes some of its earnings to stockholders.
• Ability to vote shares and influence the company.
Ok, we will stop here. Now that, we have enough reasons and started influencing the company already, UFF!!!, that seems a good deal of responsibility. Don’t worry, you don’t require to put on a tie to sit with Bill Gates at the panel meeting.
Warren: Why do companies issue stock?
Billy: I know this already, it’s because people are buying
Well, that's true too. But companies issue stock to acquire money for various matters, which may include:
• Launching new products
• Paying off debt
• Expanding into new markets or regions
• Enlarging facilities or building new ones
Warren: What kinds of stocks are there?
Billy: Maybe small, medium, large, like pizza sizes. However, I prefer personal pan pizza!!!
There are two kinds of stocks, common stock and preferred stock
Common stock entitles owners to vote at shareholder meetings and receive dividends.
Preferred stockholders, usually don’t have voting rights, but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated.
However, stocks can be further categorized depending on their performance:
• Growth stocks: These shares have earnings growing at a quicker pace than the market norm. They seldom pay dividends and investors purchase them in the promise of capital appreciation. A start-up technology company is probable to be a growth stock.
Ex: Tesla Inc (TSLA)*, Uber Technologies, Inc (UBER)*
• Income stocks: These shares pay dividends consistently. Investors buy them for the income they bring forth. An established utility company is likely to be an income stock.
Ex: Coca Cola (KO)*, International Business Machines Corp. (IBM)*
• Value stocks: These shares have a depressed price-to-earnings (PE) ratio, implying they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted, and that the stock price will rebound.
Ex: Verizon Communications (VZ)*, Altria (MO)*
• Blue-chip stocks: These shares are in large, well-known companies with a strong history of development. They also generally pay dividends.
Ex: Berkshire Hathaway (BRK)*, McDonald’s Corp. (MCD)*
• Penny Stocks: These shares are also referred as micro-cap stocks, Nano-cap or OTC stocks. These are minor companies that trade common shares for less than one buck per share in over the counter markets.
Ex: Hi-crush Inc. (HCR)*, GEE Group Inc. (JOB)*
Warren: What are the benefits and risks of stocks?
Billy: I have 50$ from the pocket money mom gave me last week
Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stay with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns.
Buying stocks help you in participating in the trends or technology that would be changing the world moving forward. Likewise, stocks make you feel being involved in the progress of nations, whose health is usually perceived looking at the GDP and stock market bulls.
But stock prices move downward as good as upwards. There’s no guarantee that the company whose stock you hold will grow and do well, so you can lose money you invest in stocks.
If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the takings. The company’s bondholders will be paid first, then holders of preferred stock. If you are a common stockholder, you get whatever is left, which may be nothing.
Even when companies aren’t in danger of dying, their stock price may fluctuate upwards or downward. Large company stocks as a group, for instance, have lost money on average nearly one out of every three years. If you must sell shares on a day when the stock price is below the price you paid for the shares, you will lose money on the sale.
Market fluctuations can be unnerving to some investors. A stock’s price can be affected by factors inside the company, such as a faulty product, or by events the company has no control over, such as political or market events. The risks of stock holdings can be offset in part by investing in several different stocks.
Tidbit Wrap
Comparing stocks prices and attempting to anticipate which one’s own potential for growth and investing in high yield stocks along with dividends and price increases can help your portfolio grow.
Opportunities are Cash in Hand, Greater Stability and protection in bad times
Obstacles are earlier taxes, study and time taken
Who should invest here:
An investor who feels receiving dividend income is appealing as an ongoing income and planning for long term savings with high-yield stocks with an understanding in an industry or time to keep themselves aware of an establishment of their pursuit.
As Warren completes his explanation and turns towards Billy, if he wanted to know anything more, laughs seeing little boy dozed off into sleep. Warren closes his tablet not to disturb, Billy’s sleep with light coming from it, and reals back to his memory lane, when he was first introduced to stocks by his father at an age of 17 and those early investments which made him a millionaire today.
Stock’s Performance:
Let’s discuss a sample of STOCKs performance from Mr.Vinstors# portfolio:
Apple Inc. (AAPL) – 4 stock splits
Then Year1985 - 100shares (100x0.5) = $50 **
Now Year2020 – 100shares (100x375) = $37,500 **
Microsoft Corporation (MSFT) – 9 stock splits
Then Year1990 - 100shares (100x0.85) = $85 **
Now Year2020 – 100shares (100x205) = $20,500 **
The Coca-Cola Company (KO) – 6 stock splits
Then Year1990 - 100shares (100x0.90) = $90 **
Now Year2020 – 100shares (100x47) = $4700 **
Altria Group, Inc. (MO) – 6 stock splits
Then Year1998 - 100shares (100x53) = $5300 **
Now Year2020 – 100shares (100x41) = $4100 **
JPMorgan Chase & Co. (JPM) – 4 stock splits
Then Year1985 - 100shares (100x13) = $1300 **
Now Year2020 – 100shares (100x99) = $9900 **
#Vinstor – The Value Street Value Investor
*These are subjected to changes.
**These are varying estimated values obtained from the historical data on the corresponding companies used as examples for conceptual understanding and do not represent any financial data or investment advice.
Disclaimer : All the conversations are solely for the understanding of the concepts and doesnot represent any live examples.
