what's up everyone kenji here and in this video i thought i'd talk about the stock market so if you
read or watch the news odds are you've come across all kinds of headlines about the stock market
from tickers to buy and sell alerts to complex charts all of which make the stock market seem
like a daunting place so in this video i thought i'd do my best to try and explain it
but before we can understand what the stock market is we first need to understand what a stock
even is in short a stock which is also known as a share represents ownership in a company
so if you buy shares in apple that means you're part owner of apple so for instance if apple's
got 100 shares and you buy one of them that means you own one percent of apple right now in reality
apple's got billions of shares now if you want to be precise about it it's 16.5 billion shares
outstanding meaning shares owned by investors and you're probably wondering how do you actually
make money with shares and there's actually two main ways first one has to do with capital gains
which is essentially all about the share price going up over time so if you bought apple shares
around september 2020 when the share price was approximately 110 dollars and you decide to sell
your shares today where it's trading at around 150 then you'd have capital gains of around 40
dollars so that's one way that they can make money and the second one has to do with dividends see
sometimes companies make a profit and when they do so they can decide to distribute some of those
profits out to their shareholders that's what's known as a dividend now not all companies do this
primarily first reason is because sometimes they decide to reinvest in the company so
instead of giving it out their shareholders they might buy a new factory or something like that
and the second reason is that sometimes they just don't make a profit right so there's actually
nothing for them to distribute in the case of apple for instance they pay a quarterly dividend
of 22 cents per share so 88 cents analyzed and sure it may not sound like much right but you got
to keep in mind that they have 16.5 billion shares outstanding so that means that they got to pay
out 88 cents to each of those and at this point you're probably wondering why do companies want
to sell stock at the end of the day if you sell stock that means that you're giving up ownership
in your company right and that's absolutely true but the reason they want to sell stock is because
they need money to continue growing and you're probably wondering well why don't they just go
to the bank like i might if i want to buy a car for instance just get a loan from them
and the reason they don't is that oftentimes it's too expensive for them to get a loan or
the bank just doesn't let them because they're seen as too risky right if they're going too
quickly the bank usually decides not to lend out to them just in case something bad might happen
and let's take this back to apple's early days in the garage so they're rapidly expanding and
they decide to go to the bank to ask them for a loan but the bank decides not to give them a loan
because they see them as too risky so instead they go for what's known as an ipo which stands for an
initial public offering this is basically the first time that the company sells its shares to
the public markets prior to that it was privately owned meaning that probably only the founders
had shares in the company but now anybody can buy shares of them now once the stock is sold publicly
that means that apple gets all the money they needed to continue growing but at the same time
they give up some ownership in the company now it all sounds good up till there but you gotta keep
in mind that the apple founders steve jobs and steve wozniak no longer own apple fully right now
their shareholders meaning that they're not their own bosses anymore instead the shareholders are
so if the shareholders are not happy with apple's performance they can decide to fire
them if they want to that's actually exactly what happened to steve jobs he got fired from apple
the company he founded himself so going public is really a double-edged sword
now he did get rehired by apple later on down the line but that's sort of besides the point
all right so we now know that companies want to sell stock to raise money but where do i do that
enter the stock market and there's stock markets all around the world but the most famous one is
probably the new york stock exchange and yes i made sure to visit it while i was working in new
york but there's many other stock exchanges out there in the us there's also the nasdaq
in china there's the shanghai stock exchange while in the uk there's the london stock exchange
these places used to be the ones that you'd see people screaming and running around the floor
but nowadays it's more of a quiet place primarily because computers are doing the work for them
and at this point you're probably wondering what about the s p 500 i hear about them all the time
but the reality is that they're not a stock exchange instead they're an index
so their goal is to replicate the performance of a set number of companies in the case of the s p 500
it's the 500 biggest companies in the us that they try to replicate so if you put money in the s p
500 you're essentially investing in all 500 companies with weights assigned based on the size
of the companies so the biggest one now is apple so if you put one thousand dollars in the s p 500
six percent of that will go to apple 5.9 into microsoft and so on and if microsoft got bigger
than apple next year because their share price went up by more then the waiting would change
right and you're probably wondering why would you invest in 500 different companies when you
can just invest in one like say your favorite one let's say that's apple for instance and the reason
is that people investors in this case consider investing in one company as something quite risky
so for instance if something happens to apple ceo the share price will go down if apple gets
sued maybe that share price will go down as well instead if you own 500 different companies even
if apple were to go down the other 499 will hopefully be doing well so that's why people
decide to diversify and own something like an index and there's many other big indexes around
the world like the nikkei 225 in japan or the ftse 100 in the uk alright so we now know what a stock
is and a basic definition of the stock market but what makes the share price actually go up or down
in short it's all about supply and demand right for every trade there has to be one
person that's willing to buy and one person that's willing to sell so if people aren't interested in
a particular stock that means that there's going to be more sellers and buyers and as a result the
share price is going to go down on the other hand if people are very interested so there's a lot of
willing buyers that means that the share price is going to go up but what time is the interest
in a share or the lack of interest in it and it's really down to two main reasons the first one has
to do with the core business so in the case of apple let's say they create a new iphone which
is selling a lot and as a result the profits are going up so investors are gonna get really excited
by that and they're gonna wanna buy that share now to measure things like a company's profitability
investors are actually looking for all kinds of metrics like the p e ratio which is probably the
most famous one out there the pb ratio is another one and using these metrics and comparing them to
other competitors they're able to tell whether they should buy hold or sell an apple share
the other main driver of interest has to do with stories in the case of apple for instance back
when it was steve jobs he was a very charismatic man and people really believed in his ideas even
if at the beginning sales and profits were not quite there yet they still bought into his grand
vision on the flip side there's also negative stories like that of deutsche bank germany's
biggest bank which back in 2007 admitted he was spying on its management team and some of its
shareholders because the bank was scared they would reveal some secrets about them for that
reason and many other ones back in 2007 the share price plummeted all right so you now
understand why prices change and you're probably wondering how can you make some money for yourself
well there's two major investing strategies fundamental analysis and technical analysis
when it comes to fundamental analysis it's all about doing extensive research on a company so
looking at things like their financials so their balance sheet their income statement
their cash flows looking at the industry growth and so on and so forth and based
on that be able to predict a share price in the future now the master of this is warren
buffett and that's basically how he's made all his billions by investing using fundamental analysis
on the other hand there's technical analysis and this is all about looking at statistical trends
so looking at the big fancy charts like these ones to predict trends they don't look at the company's
internal operations at all so they don't look for things like sales figures profits or other things
like that instead they just focus on identifying patterns so they expect history to repeat itself
essentially if back in the day the share price went down three times and after a third the share
price suddenly went up they'll be looking for that same trend and if it does happen when it's
at the very bottom they'll buy the shares and hopefully it'll go back up now i just made that
theory up completely so don't use it in practice but i think you get the idea and there's a huge
debate in the finance community as to which of the two methods is better that's a huge argument
and i'm not really gonna get into that but to do these investments you actually need what's known
as a broker which is essentially an intermediary between you the investor and the stock exchange so
for instance if you want to buy a share of apple say you actually need to go through a broker and
some of the more common or well-known brokers out there are robin hood you've probably heard of it
charles schwab as well as fidelity as for the fees for each trade nowadays most brokers don't charge
a fee at all but there's still some that charge anywhere from five to ten dollars or something
like that but if you're interested in getting into investing i do suggest you check out this other
video that i made i'll leave it somewhere linked up here so what i've covered so far hopefully gave
you a better idea of the stock market if you have any future video ideas do let me know down in the
comments also i'm constantly looking for feedback so if you feel like i'm not doing the explaining
very well or the editing very well do let me know in the comments i'm always happy to to see where
i can improve that's all for this one and i'll hopefully catch you guys in the next one you