What is the Stock Market?

February 07, 2024

Are you intrigued by the stock market but find it overwhelmingly complex? Welcome to "Centsational Chats," where today's Finance Pill #3 simplifies this vast financial landscape into digestible insights. No guests today, just us embarking on a journey to uncover what the stock market truly is and how it can be a pivotal component of your financial strategy.

Episode Benefits & Takeaways:

Understand the Stock Market Basics: Learn what the stock market is, how it functions, and the distinction between a stock market and a stock exchange
Ownership vs. Lending: Unravel the difference between being a shareholder and a lender
Making Money through Investments: Explore the two primary ways to earn money in the stock market
Understand how investments can outpace inflation, securing your financial future.

Who Should Listen:

This episode is crafted for anyone curious about the stock market, from beginners seeking foundational knowledge to seasoned investors looking for a refresher. Whether you're contemplating your first investment or aiming to better understand your existing portfolio, this guide lays down the essential principles you need to navigate the stock market confidently. By breaking down complex concepts into simple, everyday terms, we aim to empower you with the knowledge to begin or enhance your investment journey. Whether you're interested in understanding how to become a part-owner of your favorite companies or curious about the mechanics of earning through investments, this episode is your starting point. Stay tuned for our next episode, where we'll guide you through starting your investment journey, assessing risks, and making informed decisions.

Free Resources:

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Connect with us!

* Website | www.centofawoman.com

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*TikTok | @centofawoman

* YouTube | www.youtube.com/@Centofawoman

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Sei incuriosito dalla Borsa e dal mercato azionario? ma sono eccessivamente complessi per te? Benvenuta a "Centsational Chats", con la nostra Finance Pill #3 che oggi semplifica tutto ciò in piccole pillole. Nessun ospite oggi, solo una chiacchiera tra noi per scoprire cosa sia veramente la borsa e come possa essere una componente fondamentale della tua strategia finanziaria.

Punti salienti dell'episodio:

Impara cos'è il mercato azionario, come funziona e la distinzione tra un mercato azionario e una borsa valori
Differenze tra azionisti vs creditori
Esplora i due modi principali per guadagnare nel mercato azionario.
Comprendi come gli investimenti possano superare l'inflazione, garantendo il tuo futuro finanziario.

Chi Dovrebbe Ascoltare:

Questo episodio è pensato per chiunque sia curioso del mercato azionario, dai principianti che cercano conoscenze di base agli investitori esperti alla ricerca di un ripasso. Che tu stia contemplando il tuo primo investimento o miri a comprendere meglio il tuo portafoglio esistente, questa guida stabilisce i principi essenziali per navigare con fiducia nel mercato azionario. Scomponendo concetti complessi in termini semplici e quotidiani, miriamo a fornirti la conoscenza per iniziare o migliorare il tuo viaggio di investimento. Che tu sia interessato a capire come diventare azionista o curioso dei meccanismi di guadagno, questo episodio è il tuo punto di partenza. Rimani sintonizzato per il nostro prossimo episodio, in cui ti guideremo sul come iniziare il tuo viaggio, valutando i rischi e prendendo decisioni informate.

Risorse gratuite:

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Impara le basi della Finanza Personale in soli 5 giorni. Unisciti alla Sfida GRATUITA.

Connect with us!

* Website | www.centofawoman.com

* Instagram | @centofawoman

*LinkedIn | www.linkedin.com/company/cent-of-a-woman

*TikTok | @centofawoman

* YouTube | www.youtube.com/@Centofawoman

Episode Transcript

Hello, everyone! Welcome back to "Centsational Chats." This is Finance Pill #3, where we continue to demystify the world of finance, making it accessible and engaging. I'm Francesca, and today we're tackling a topic that many of you in our community have asked about: What is the stock market? To ensure a comprehensive understanding, we recommend listening to our previous finance pills. But now, let's break down the concept of the stock market in a way that's as simple and relatable as grabbing your favorite coffee from that little café around the corner. And remember, I love hearing from you! Your questions and interactions on our social media platforms inspire these episodes and help shape our content. So keep those questions coming, and let's continue this financial empowerment journey together. So, what’s the stock market? The stock market is like a gigantic online marketplace, not too different from eBay or Amazon, but instead of shopping for clothes or gadgets, you're browsing through shares of companies. These shares represent a tiny part of a business. When you buy a share, you're essentially owning a piece of that company and saying, “I believe in this company’s future”. Therefore let’s again consider Amazon's vast online marketplace example. Just as you browse Amazon for various items from different sellers, as it connects you with plenty of products and sellers, the stock market connects investors with various companies and allows you (the investor) to browse and invest in different companies. But, what's the difference between the stock market and a stock exchange? Think of the stock market as a vast ocean of investment opportunities – it's a general term including all the activities related to buying, selling, and issuing shares of publicly-held companies. Within this ocean, stock exchanges are like individual ports – like the New York Stock Exchange (NYSE) or the London Stock Exchange – where specific buying and selling activities take place. Amsterdam, was home to the world's first stock exchange. Established in 1602 by the Dutch East India Company, this was more than just a building for trading; it was the birthplace of a revolutionary system that allowed businesses to grow with public capital and gave people a chance to own a part of these businesses. But why do companies sell shares? Because they need capital to grow. Imagine you and a group of friends decide to start a small cupcake business in your neighborhood. Let's call it "Sweet Success." However, to start this business, you need funds for ingredients, baking equipment, and a small stall. Instead of going to a bank for a loan, you decide to sell 'pieces' of your business to your neighbors. Each piece, or share, is worth €10, and it represents a small part of your cupcake business. Your neighbors love your cupcakes and believe in your skills, so they buy these shares. As "Sweet Success" grows popular, the value of your business increases. Those €10 shares are now worth €15 or even €20 because more people want a piece of your successful venture. Shareholders, i.e. your neighbors who initially bought shares, can now sell them at a higher price, enjoying the profits – this is what we call capital gains in the stock market. But there's more. Since "Sweet Success" is doing so well, you decide to share some of the profits with your shareholders as a token of gratitude. Periodically, you give them a small percentage of the earnings – these are called dividends. Through "Sweet Success," we've seen how the stock market works on a basic level. It's about investing in a business and sharing in its success (or facing the risks if it doesn't do well). Just like your cupcake venture, companies list their shares on stock exchanges, and investors buy these shares, betting on the company's future. But how exactly does one make money in the stock market? as explained earlier there are two primary ways: capital gains and dividends. Capital gains are straightforward – buy low, sell high. Imagine buying a painting from an unknown artist at a modest price. Years later, that artist becomes famous, and the value of your painting skyrockets. Selling it now would net you a significant profit. That's capital gain. Dividends, on the other hand, work a bit differently. They are like thank-you notes from companies, with a cash bonus to their shareholders. If you own shares in a company that pays dividends, you receive a small portion of the company's profits regularly. It's like having a tree in your garden that drops money every few months! Now, why is a shareholder considered an owner, while a lender is not? This distinction is crucial. When you buy shares, you're buying a piece of ownership in a company. Like owning a slice of a cake, you get a say (small) in how the company is run, and you share in its profits – and sometimes, its losses. For example, if Amazon issues shares and you buy them, you become one of many owners of Amazon. You're entitled to vote on certain decisions and might receive dividends when the company profits. In contrast, lenders are like the people who lend you money to buy that slice of cake. They don't own any part of the cake; they just want their money back, usually with interest. When a company takes a loan from a bank or issues bonds, the lenders are entitled to repayment of their loan amount plus interest. They don't get a say in company decisions and don't share in profits beyond their fixed interest earnings. Going back to our Cupcake business example…What if one of your friends had lent you €50 for the business instead? That friend is a lender. They don't own a part of "Sweet Success", they are not shareholders, they only expect to get their €50 back, maybe with a little extra as thanks. Your friends in this case are lenders and not shareholders, like a bank lending you money to buy a house through a mortgage. Ok but, why invest? Apart from potentially earning money (through capital gains and/or dividends), it's about staying ahead of inflation – the gradual increase in prices over time. Imagine stashing €1000 under your mattress. In 10 years, that €1000 won't buy you as much as it does today. Investing is like putting that money to work, so it grows instead of just sitting there. In summary, the stock market is where you can buy little pieces of companies and watch your investment grow. Let's talk about scale. The global stock market is immense, valued at over $95 trillion in 2021. That's larger than the economies of most countries. It's a vast sea of opportunities, with millions of investors and thousands of companies. And remember, every great company, from Apple to Zara, started with a simple idea and a need for capital. Investing in the stock market is a journey, not just a destination. It's about learning, growing, and participating in the economic growth of companies and countries. In our next episode, we'll explore how you can start this journey, understand the risks, and make informed decisions. As we conclude Finance Pill #3, remember that investing in the stock market is a journey of discovery, learning, and empowerment. Stay tuned for our next episode, where we’ll delve into starting this journey.

What is the Stock Market?

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