Intro: Stock Investments


An Introduction to Stock Investments


When you own a company’s stock, you have a residual claim on the company’s income.

  • This means you get whatever is left over after all others are paid. This could be $0, or a fortune.

  • This is unlike bondholders, who are promised a set payment.

  • Stock also represents ownership, which affords the holder rights such as electing board members and voting on corporate actions.

Limited Liability

As a stockholder you are not liable for the company’s debts.

  • This means if the company goes bankrupt, the unpaid bondholders or other claimants cannot try to get the money from you.

  • Because of limited liability, stock prices cannot fall below $0.

Gains from Ownership

Stockholders may gain from owning stock by receiving dividends and through price appreciation.

  • Dividends are payments the corporation makes to stockholders using after-tax income. Companies are not obligated to pay dividends.

  • Price appreciation (capital gains) refers to selling stock for a price higher than you bought the stock.

Trading Stock

Stock is traded on many exchanges across the United States.

  • There are 18 national securities exchanges registered with the U.S. Securities and Exchange Commission.

  • Many of these exchanges are Electronic Communication Networks (ECNs), which are located in a computer server.

  • The best quotes across all exchanges are reported in the ‘Consolidated Tape,’ which ensures investors receive the best price across all exchanges when they buy or sell stock.

Stock Quotes

Stocks are often identified by a specific ticker symbol, such as CL for the Colgate-Palmolive Company. This ticker is unique to Colgate-Palmolive across all U.S. stock exchanges. But please note that on the New York Mercantile Exchange (which is a commodities exchange) CLmeans a light sweet crude oil contract. So CL can have different meanings on other types of exchanges.

When you see a stock ticker with something like: CL 67.04 +0.04 it means Colgate-Palmolive last traded for $67.04 per share, which is 4 cents higher than the last trade in Colgate-Palmolive yesterday. The last trade in Colgate-Palmolive yesterday is known as yesterday’s closing price. The last trade could have taken place on any exchange.

  • We get stock quotes from the consolidated tape.

  • On the next slide, you can input ticker symbols to compare the stock of different companies.

Stock Analysis

Methods to predict future stock performance generally fall into two categories: fundamental analysis and technical analysis.

  • Fundamental analysis uses financial statement data to identify companies which are undervalued or are likely to grow.

  • Technical analysis uses past prices to predict future prices.

The next slide features an interactive chart with stock price, volume, and a choice of some common technical analysis indicators.

Historical Stock Performance

Stock has historically been one of the best performing asset classes. While stock returns have been quite high, stock returns are also volatile. In the following interactive app, you can chart stock going as far back as 1950.

  • Moving the mouse over the chart at any date will tell you the stock price on that date.

  • You can also change the date window using the selector at the bottom or by left-clicking and dragging on the chart itself.

  • You can plot the S&P 500 index by using ^GSPC as the ticker.

Credits and Collaboration

Click the following links to see the codeline-by-line contributions to this presentation, and all the collaborators who have contributed to 5-Minute Finance via GitHub.

Learn more about how to contribute here.