Author Archives: Robert Bannon

STOCK MARKET BASICS FOR NEWBIES – 2

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STOCK EXCHANGE FUNDAMENTALS

In our previous section we learned that inventor Bob created a company to organize, produce and sell his new invention – we’ll call it a widget. He used the facilities of a stock exchange to finance the project and make this happen so that people could participate by buying units of ownership called shares. By the way, the original decision to use the stock exchange and offer shares for sale in order to raise money for the company is called an IPO or Initial Public Offering.

So, in the early days of our enterprise, that we named “Orange,” there may not be a lot of excitement in terms of the stock market. It takes time and a lot of work to build a company and begin to see the values increase. After some basics we will see how the growth of the company affects these common shares that people purchased to help the company get started. The day to day pricing of a common share or stock can be influenced by many factors, some controllable by the company, and some from outside influences.

The words “stock” and “share” are basically interchangeable for our purposes here. The company is required to report to its shareholders on a regular basis and you may be familiar with the terms of quarterly or annual reports. These are a review of the financial results of the company and usually a comment about the management’s plans for the future.

Initially, the company picked a price to sell their shares to the public – in our example this was 10.00 per share and the proceeds went to the company’s bank account. Because the company chose to use a “stock exchange” to raise the capital, the shares must be listed on that exchange so that people can see them. Anyone else, in addition to the original buyers, can buy these shares since they are now public but how and at what price? Remember earlier we said that a stock exchange is simply an auction market. In other words, a person who currently owns the shares could offer them for sale at any time and another person could be willing to buy these shares – the trick is to agree on a price.

In reality, this is not much different than you selling your dining room suite on Kijijii or Marketplace or some other way. You would list it for sale at a price you consider to be fair and a potential buyer would tell you that they are willing to pay that price or perhaps offer you a price below your listing. At some point in time you might agree to an exchange of money for the dining room suite. The stock market is a bit more organized than that and has other rules in place to protect the buyer and seller but the process is basically the same.

Let’s try and put this process into real world terms to see how it works. We will pretend that my name is Bill and I learned about inventor-Bob’s company and attempt to raise capital and was interested and impressed with the potential of his widget. As a result, I bought 100 of the initial shares that were offered at 10.00 each. George, later learned about our company “Orange” from the various PR releases / quarterly reports, etc. from the company and maybe other sources and has been watching their efforts. He thinks they have the potential to be successful and would like to own a piece of it. He is interested in buying some ownership units or shares (same thing – remember). We also need to understand that the company originally sold 500 shares and there are no more company shares available to purchase. In order for George to buy some shares, he will need to buy them from Bill or another share owner.

The stock exchange has hundreds of companies “listed” and one of them is Orange. This means that every day, and during the day, the exchange will show what people are willing to buy a share for and what people are willing to sell a share for – in this case “Orange.” Let’s introduce a couple of new terms here – bid and ask. Just like an auction sale we have one person willing to “bid” on a product at a certain price and someone else who is “asking” or offering to sell shares at a different price. This very closely relates to our efforts to sell the dining room suite on Kijijii at one price (the ask or offer) and someone else who is looking for a dining room suite and is willing to pay (buy or bid) at a slightly different price perhaps.

The whole purpose of the stock exchange is to facilitate the “exchange of shares” from the seller to the buyer at a price that is agreeable. You may have many questions about how they agree on a price and the process of this agreement. For now, the buyer and seller are not required to actually talk to each other or even know the other party. We will cover that soon since there are intermediaries and rules that govern this. However, before getting to that we will continue our conversation about common shares themselves and some of the characteristics and investment opportunities they present. The next section will go into a little more depth to help you understand more about shares. One thing that is very important to remember, the company sold the original 500 shares and received the money for it but those same shares are now owned by investors, not the company. So, any buying or selling of shares from this point on, does not result in money being added to the company’s bank account.

We are intentionally over simplifying some of this information. Our purpose is to help you understand the basics. Trading techniques and philosophies are for a different time and place. We will continue with more basic information in the next section.

STOCK MARKET BASICS FOR NEWBIES

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Introduction

How do I invest in the stock market without losing my shirt? I don’t understand how all that stock market stuff works so I’d better stay away from it. I don’t know how to buy or sell stocks and bonds so I’ll let my investment advisor make those decisions. If I just go into the bank and tell them I want to invest my money, they’ll know what to do – right?

The fear of the unknown costs all of us opportunity, time and money. If you do an online search for “investing,” “stock market,” or some other similar term in the hopes of learning how it all works, you will usually be disappointed. Why? Because most search terms will turn up a plethora of advice on what to do, where to put your money, what you should buy, sell, or hold. But what if you want to simply learn what the main components of the stock market are so that you can decide if this is something you should get involved with? Well, you have come to the right place.

We are going to present a basic primer about the stock market as a possible investing tool for you. You will learn what some of the terms mean and how they apply to you and your decisions. What we won’t be doing is – offering specific investment advice, selling you on some product that we make money on, trying to entice you to do something you don’t understand. This will be your plain language reference point about the stock market and how it works. We will be adding bite-sized pieces as you continue to build one piece of information upon the previous one until you have a fundamental understanding of how it works.

Let’s start with a basic explanation of what a stock market is. Most mature economic countries have at least one stock market that is regulated by the government that is charged with overseeing the operations to be sure they are open and transparent to its participants. At its most basic, a stock market is simply an auction site where people have the ability to buy and sell something, specifically, investment vehicles. Let’s use a story to illustrate how this works: suppose you have a neighbor named Bob (a coincidence – perhaps) who likes to tinker in his garage. Through his tinkering efforts and needs, Bob creates a very useful tool to help him. He continues to use and refine his tool until he gets it working absolutely perfectly – fantastic!

Now Bob, our erstwhile tinkerer, is also a pretty bright business guy and starts to think that if his invention is so valuable to him, it might also be valuable to other people. What would it take for him to make it available to a wide range of people? He would have to build some sort of manufacturing facility, buy raw materials, hire employees, create a marketing campaign, delivery processes, sales people, accountants, lawyers and on and on. All of this will cost a lot of money. Bob has some savings but would he be prepared to risk his family’s financial well-being by using his assets to start his company. Perhaps he could borrow money from the bank but they will want him to assign all of his assets to use as collateral for the loan – too risky. Is there an alternative?

Let’s present an approach that is used every day all over the world to allow Bob to start his company. We are going to ignore the regulatory, legal and accounting requirements of this exercise to keep it simple and it does not affect your ability to understand the functions of a stock exchange. Neighbor-Bob decides that he is willing to give up some ownership in his new enterprise in exchange for the money/capital to get it started. He decides that the company will have 1000 units of ownership (shares) and that he is willing to sell half of these to raise the capital needed. Let’s suppose he needs 5,000.00 to get it going so he will sell 500 shares through the stock exchange at 10.00 each. This means that other people will buy a total of 500 shares – or units of ownership.

We should give Bob’s company a name. Let’s call the company Orange. Here is what has just happened. “Orange” has used the facilities of a stock exchange to raise the capital it needs to start operations. Bob, its president, can now utilize the money raised to begin building the company. What happens to those people who purchased units of ownership or shares and how do they get rewarded? Coming up next will be a discussion of common shares, and how they change ownership and value.

WHAT’S YOUR WORD FOR THE YEAR?

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Most of us have heard or seen the saying that we are who we think we are. Now I don’t want to scare you but when we look a little below the surface of the life we are living, it is entirely possible that our life reflects our thoughts both positive and negative. Can we, through our constant thoughts, actually create success, failure, sickness, abundance and everything else we experience in our time here? I strongly suspect that this is exactly what we do.

Given those random thoughts, I wonder if we could be more intentional about what we create for ourselves and how might we do this in a way that could be both fun and effective? Like many of you, when I begin to ponder things, interesting stuff begins to show up in my life. A few days ago, I received some information that began to focus my thought waves into the idea of forming a thought or mantra that I could carry through the next year. The possibility of intentionally choosing a word to guide me through the next 12 months is very interesting and appealing.

So, I invite you to join me in taking a few minutes (we all have lots of those this year) to ponder your word for next year. Think of it this way; your word will be like a filter through which you will funnel your decisions, plans, and actions to guide you in your life. Now lets have a little fun with this – when you have chosen your word, add a comment to this post with your word. You don’t have to justify or explain yourself, unless you want to. Add your word in a comment and please, feel free to share this post with your family, friends, social networks – let’s offer this idea to other people so they can live next year with intention, purpose and success.

You might want to create some signs around your house or workspace with your word on it to remind you as you go about your day. I have added a list of words as inspiration but you don’t need to choose one of these if you have a better one. Later this week, I will add a comment with the word I choose as well.

My hope is that you have an incredible 2021.

ABUNDANCE ACCEPT ACCOMPLISH ACTION ADVENTURE AGILITY ALIGNMENT AMAZE APPRECIATE AUDATIOUS AUDACITY AUTHENTIC AWAKEN AWESOME BALANCE BELIEVE BLOOM BLOSSOM BOLD BOUNDARIES BOUNDLESS BRAVE BREATHE BRILLIANCE CALM CAPABLE CELEBRATE CHANGE CHOOSE COMFORT COMMIT COMPLETE CONFIDENCE CONNECTION CONQUER CONSISTENCY CONTENTMENT COURAGE CREATE CULTIVATE DEDICATED DELIBERATE DETERMINATION DILIGENCE DISCIPLINE DISCOVER EFFICIENCY EFFICIENT ELEVATE EMBRACE EMERGE EMPOWER ENGAGED ENOUGH EPIC ESSENCE ESSENTIAL EXPLORE FAITH FAMILY FEARLESS FIERCE FINISH FLOURISH FLOW FOCUS FOREGIVENESS FORWARD FREEDOM GIVE GLOW GRACE GRATITUDE GRIT GROUNDED GROWTH HAPPINESS HARMONY HOME HONOUR HUSTLE INCOMPARABLE INDEPENDENCE INSPIRATION INSPIRED INTENTIONAL JOY KINDNESS KISS (KEEP IT SIMPLE STUPID) LAUGHTER LEAP LEARN LESS LIBERATE LIGHT LIMITLESS LISTEN LOVE MAGNETIC MAINTAIN MARGINS ME MINDFUL MINIMIZE MOMENTUM MOVE NOBLE NOW NURTURE OPEN ORGANIZE OVERCOME PASSION PATIENCE PEACE PERSEVERANCE PERSIST PHENOMENAL PLAN PLAYFUL POSITIVITY POSSIBLE POWER PREPARED PRESENCE PROACTIVE PRODUCTIVE PROGRESS PROSPER PURPOSE QUEST RADIANCE RECEIVE RECOVER REFRESH RELATIONSHIPS RELAX RELEASE RELENTLESS REMARKABLE RENEW RESOLVE REST REVIVE RISE ROUTINES SELF-CONTROL SERENITY SHINE SIMPLIFY SLOW SOAR SPACE SPARK SPONTANEOUS STEADY STRENGTH STRIVE STRONG STRUCTURE SUCCEED SURRENDER TEMPERANCE TENACIOUS TENACITY THRIVE TODAY TRANSFORM TRANSITION TRUST TRUTH UNBOUND UNCLUTTERED UNFLAPPABLE UNSTOPPABLE VALUE VICTORIOUS VICTORY VISION WECOME WELLNESS WONDER WORTHY YES