Stock Research
Homework Steps:
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Already know it?...
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THE KEY FACTS:
(quick snapshot... understanding your stock)
100   Stock ticker & Company Profile
110   Anatomy of a Stock - company snapshot
120   What the company does and how it makes its money
130   What Sector & Which Industry?
140   What Competitors?
150   Knowing The Share Price History
160   Knowing Number of Shares Outstanding
     
INTERNAL FACTORS:
(what the company controls)
200   Company Website
220   Annual Report (10K)
230   Latest Quarterly Report (10Q) & Other SEC Filings
240   Conference Calls
250   Earnings Guidance Provided
260   Insider Buying & Selling
270   Stock Splits
275   Secondary Offerings
280   Dividend & Yield
     
EXTERNAL FACTORS:
(what others control)
300   Analyst Ratings & Expectations
310   Major Holders
320   Major Index Membership
330   Short Position
340   News Headlines
350   Industry Events
     
KNOWING YOURSELF:
(what you can control)

400   Your Available Time
410   Age/Risk Tolerance
420   Don't Buy All At Once
430   Diversification
     
CHECK THE EXPERTS:
500   Jim Cramer's 25 Rules for Investing
510   Warren Buffett's Stock Portfolio
520   Business News - TV & Newspapers
530   Business News - Websites
540   Last check: Cramer's latest comments on MadMoneyRecap.com
     
TRADING RESOURCES:
600   Stocks 101: The Basics
610   Online Trading 101 (vs. paying a broker)
620   Anatomy Of A Stock:  The Parts
630   Mad Money Recap
640   Setting up your own free Yahoo! Finance Portfolio
650   Stock/Investing Glossary
     
ADVANCED TOPICS:
(coming soon)

700   Open Step
750   Open Step
790   Open Step
     
FREE HOMEWORK WORKBOOK CHECKLISTS:
800   Ongoing Weekly Homework for each of your stocks
WB   Free Stock Homework Workbook - PDF Download

 

 

 

 

 

 
 

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  600  Stocks 101:  The Basics                                                                                    Share


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Supply And Demand...

If you've ever taken an economics class, you've heard of "supply and demand."  If there is too much demand for anything, prices go up; too much supply, prices go down.

 

Think of it this way... A trader represents a big mutual fund that is VERY interested in buying 100,000 shares of Apple by the end of the day. In fact, he has to because it is the last day of the quarter, and he has to show that amount of Apple stock in his report to his investors. Okay, so the trader puts in the order at 3:30 pm for $200 a share (and the market closes at 4pm). At 3:50pm, the price has not come down to the $200 a share that he wants to pay, and the sellers are asking $206, even though the current price is just $205. Again, the current price is $205 a share, but the lowest "ASK" price is $206. That mutual fund manager is running out of time. He can't risk it. He calls his trader and tells him to increase his "BID" price to $206 so that he is sure to get his stock for his mutual fund. His trade has just made the stock "go up" to $206 a share, where it closes for the day as the last trade price (i.e., the "closing price" for the stock).

                                                 Continued below...

 
 

Consider each share of stock like a new car... that becomes a used car... 
So you've learned about an IPO.  That's the shiny brand-new car that the dealer sells you for full cost...  In this example, let's say that the stock IPO price was $23 a share.

But then it rolls off the lot, and it loses value... Let's say that, just after the IPO, the company announces disappointing earnings, and the stock price goes down.  And the original buyer of the IPO panics and sells it for $3 a share less than he paid.  So he just sold it for $20 a share, and incurred a loss of $3 a share.

Okay, let's track that money.  Who won and who lost?

The company got the full price with the IPO.  They're like a car dealer who go the full price for the car.

Afterward, the car maybe got a bad safety rating, and it was considered less valuable for resale value.  Then the next buyer offers much less for the car, even though it is only 3 months old.  So that seller pays less for the car.  The original amount went to the dealer.  The lesser amount went to the first owner of the car (i.e., the first owner of the stock), and that buyer feels like he got a deal, because he believes the car will become a collector's item and go up in value.

He's right.  The car is claimed to be a collector's item and goes up in value.  The third buyer comes in and offers the owner 20% more for the car, after he's owned it only six months.  They agree and the third "trade" is made on this car.

Now substitute stock in this example, and the same thing happens to the value of stock.  It's really that simple.  In between sales, events occur.  They affect the perceived value of the stock, and then that current owner decides that the stock has either increased or decreased in value, and he sells it for more or less than he bought it.  The money continues to come from new buyers and goes to the last seller. 
 
 
 

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