Lesson 8: Conclusion

We hope this course has helped you better understand the stock market. You might not be ready to become a day trader or host a show on CNBC, but if you’re thinking about investing (or just want to keep up with a conversation with your friends), you should have a better sense of how the stock market works.

Key takeaways

1. The stock market is like a big auction where anyone interested can buy and sell stocks, or shares, which are small ownership slices of publicly traded companies.
2. Stocks are bought and sold on a stock exchange. Individual investors can’t go straight to the stock exchange, so they work with a broker to buy and sell.
3. A stock index tracks the performance of a group of stocks that are representative of the market overall. Investors can watch stock indexes to track past and current performance.
4. Companies sell stocks and investors buy stocks with the goal of making money. A business might want to raise money to create a new product, and an individual might be using stocks to make money for retirement.
5. Many people invest in mutual funds instead of buying individual stocks. Mutual funds let you pool your money with other investors to buy more and varied stocks across different companies.
6. Not all stocks are created equal. Different types of stocks may have different growth rates, expected returns, dividend payments, and risk levels.
7. Stock prices go up and down based on what investors are willing to pay. Things like a company’s profits, company news, and how investors think a company will do in the future can all impact a stock’s price.
8. The economy can affect stock prices, how many shares are bought and sold, and the types of investments people make. On the flip side, the stock market’s performance can impact whether people think the economy is doing well or poorly.
9. In a bull market, stock prices rise for an extended period of time. When stock prices drop and keep falling, it’s called a bear market.
10. Price returns, total returns, and relative stock performance are all useful tools for keeping track of how well an individual stock does over time and deciding when to buy or sell shares.