stocks

For many people a mutual fund presents one of the easiest ways to get involved in the stock market. Rather than buy specific stocks, mutual funds allow you to pool your money with a bunch of other investors and buy a collection of stocks together. This pooling of money also makes it possible for the group to hire a money manager to choose the stocks, which can yield better returns than if we were to all choose stocks on our own. So let's take a closer look at mutual funds and their advantages and disadvantages.

Advantages

You may have never heard of "Market Capitalization," but there's a good chance that you've heard of "large cap" or "small cap" stocks before. As usual the financial world goes out of their way to make something fairly simple sound pretty complicated. In its simplest sense, market capitalization is simply a measure of the company's total worth.

We calculate that by multiplying the number of shares in circulation times the price per share. In other words, the market capitalization of a stock is how much money it would take to buy all the shares of the stock.

If you've been watching the financial news lately, you've probably not found it overly comforting. Among the many threats we hear about is inflation. 

When I first started working in finance, I was overwhelmed by simple definitions.  It took a lot of time, patience, and self-education to become comfortable with general finance terms.  Even as I began to understand generalities, though, stock terms still intimidated me.  Stocks took even more of an effort on my part to become comfortable with terms and ideas, so I'm glad to have the chance to share the benefit with you!  Let’s continue our path toward stock term education by looking at “dividends” and “dividend yields”.

Dividends 

If you are just entering the stock market, the many details involved in stock trade can be confusing and overwhelming.  Fortunately, just a little knowledge can help you invest wisely.  However, before investing, you should brush up on some stock market terms, including “stock market indices.”  Let’s look at the definition of stock market indices, the indices available, and what indices can do for your investments.

What are Stock Market Indices?

The third part in our series on The Right Questions to Ask About Stocks takes a look at a company's growth. We've learned about the earnings of a company and how to relate it to the price of the stock via the price to earnings ratio. Once we've compared the stock's price to its earnings, the next thing we want to know is whether those earnings will increase or lessen.

If you're anything like me, running a Google search and trying to get basic info on a topic can end up driving you bonkers. Take stocks, for example.  Google "stocks," or even "simple stock explanation," and you get over six million matches when all you really wanted were some solid facts in plain English.  Like Denzel Washington in Philadephia, I say: "Explain it to me like I'm a six year old." 

The second part in our series on The Right Questions to Ask About Stocks takes a look at the price to earnings ratio, or P/E ratio. As you might expect the P/E ratio helps us determine the relationship between a company's price and its earnings. In a very real sense it tells us how much we're paying per dollar of earnings the company makes. This can help give us a base line to start researching a stock.

So we all have a rough idea of what earnings are, but what exactly do they mean in the corporate world? Ultimately, earnings are how much money a company made after all its expenses were deducted. The way we arrive at the number is pretty complex, but it at least gives us an answer to a simple question: Is the company making money?