English’s Paving is not publicly-traded. But it does great driveways. Check them out for all your asphalt needs this Summer – www.englishspaving.ca
WTF is a stock, anyway?
The term “stock” is used by most people to describe equity in a publicly-traded corporation.
Equity means ownership; another example of equity would be a mortgage payment. Your monthly payment purchases equity of your home. Because the bank owns your house until your mortgage balance says $0. then you own your house.
What is a publicly-traded corporation?
A corporation is a unique type of business ownership that creates a separate legal entity from its owners. Almost like – an alter ego. Superman was Clark Kent, right? Well, at one point in time numerous people owned Enron. But where Enron was a corporation, the people who owned parts of Enron were not on the hook for its bankruptcy. Creating a corporation is a way of protecting individuals from a potential business failure. Along with a lot of other benefits, which we won’t get into today.
Publicly-traded corporations are corporations that trade on stock exchanges. Most businesses that we shop at are actually publicly-traded corporations. For example – if you go to Dominion Supermarkets, Dominion’s parent corporation is called “Loblaw’s” and is traded on the Toronto Stock Exchange under the ticker symbol “L”. You walk into your bank (we’ll say CIBC). CIBC trades on the Toronto Stock Exchange under the symbol “CM”.
What is a Stock Exchange?
A stock exchange is like…. a flea market on Sunday at the Avalon Mall. But for much, much bigger companies and a lot more organization. Maybe a couple less wooden tables. Give or take.
WTF is a stock, anyway?
When a person “purchases stock” in a company, they are actually purchasing SHARES of a company. Just think of a publicly-traded company like a gigantic pizza. There are millions of pieces of this metaphorical company pizza. Sometimes billions of pizza slices. Irrelevant fact – I had Chicago deep-dish pizza in 2023 @ the O’Hare Airport. Pretty good I gotta say. Doughy, but good.
When you think of the stock market this way, you start to make better decisions. Instead of buying a price tag – you’re buying a company. When you purchase shares of a company, you are now an owner of a business. Albeit a small one and most of the time without voting rights, but still an owner. You wouldn’t buy a house without investigating it. You probably wouldn’t buy a car without test-driving it. But so many people purchase stock in companies without knowing who the CEO is, or its annual revenue.
Stocks Are Risky Aren’t They?
It depends. If you buy an S and P 500 index fund and hold onto it for 20 years, it’s very unlikely that you’ll lose your principle. An S and P 500 ETF has small amounts of ownership in 500 of the top US companies. Essentially – when you purchase shares of an S and P 500 index fund – you’re picking up a little piece of Apple, Amazon, Tesla, Nvidia, Microsoft, Chevron, Google, etc etc etc… unless the world blows up, the chances of all 500 of these companies going under are real slim.
BUT… if you’re taking $100,000 and putting it on a company that sells magazines only and trades for $0.09/share… then yes, that is highly risky. That’s like playing basketball with an iPhone that doesn’t have a case on it. Or trying to go a week in Cuba without applying deodorant and expecting not to smell a little bit.
In the same breath, risk can be your friend. Risk and reward are often correlated, meaning higher risk renders potentially higher rewards. Personally, I like taking calculated risks.
Can You Lose All Your Money In the Stock Market?
Absolutely, most definitely yes (you can lose what you put in. If a company that you hold goes bankrupt, your shares are now worthless. No one can come after your personal assets. It just sucks knowing that $20,000 you worked your a$$ off to get is now… $0).
Stock Market “Never’s”
*** Never invest in a company that you do not understand. If you do not understand microchips and artificial intelligence, I’d suggest avoiding Nvidia even though it is an excellent company.
*** Never invest in the stock market if you do not have a basic understanding of how to analyze financial statements. If you do not know what a financial statement is, I would suggest staying away from the stock market entirely until you know (at the very least) the basics. There are places on the internet where you can practice investing in equities with virtual money (free to try) – example here (I have never used this platform but have heard good things from others, FYI).
*** Never invest more than you are willing to lose. Markets are volatile (aka they fluctuate a lot), and companies that seem like a sure thing might not be 10 years from now (Sears, anyone?).
*** Never invest in companies without doing your due diligence (research). The guy on the street corner might know plenty about stocks, or the guy at the gym might have hit a 1000% return on some penny stock, but that does not mean you should buy company Y on a limb.
*** Never invest in a great company at an absurd price. When companies are over-valued – no matter how awesome they may be – the value is already reflected in the share price.
Books I’ve Read (Outside of School) That I’d Suggest
Some aren’t “book people” so I would imagine these titles are available in audiobook format. But these titles are likely in my office (some I have given out to people), I have read them cover-to-cover and love them all.
Investing 101 (by Michele Cagan). This is easy to read, it’s a smaller book physically which I found less intimidating when I first picked it up a long time ago.
The Intelligent Investor (by Benjamin Graham). This book is very wordy and not my top pick for beginners, but the concepts of this book shape value investing.
One Up on Wall Street (by Peter Lynch). Peter is arguably my favourite investor of all-time. His approach is very simple; he wasn’t born into money and spent his teenage years caddying on golf courses for wealthy people. A good rags-to-riches guy that reinforces the concept of capitalism.
Until Next Time,
AP