Tuesday, July 17, 2007

Deciphering Financial Mumbo Jumbo

Hello everyone.
Before I begin, I just want to issue a caveat. I by no means intend to offend anyone's intellect by this post. There are many intelligent women and men in my readership who are much more knowledgeable about the stock market, economics, and personal finance issues than I am. This post is not for them, or not geared specifically toward them. It is geared toward the reader who always hears terms like "the Dow", "the Nasdaq", and "the S&P 500" and always wonders what those terms mean. This post is intended to be a primer for those who want an extremely basic overview of the stock market. So here goes...

As the name suggests, the "stock market" is an entity in which stocks are bought and sold. To reivew something that I've written about in a previous post, a stock is essentially ownership of a piece of a company. So when you buy stocks, you are buying a company. The stock market, like any other market, is made up of buyers and sellers. Although in the long-term things like how profitable a company is and how it allocates its earnings determine a stock price, in the short-term, how many buyers and sellers there are of a stock determines its price. For instance, think about what happens with hot ticket items like the iPhone or the X-box. When these items first came out, people lined up for them and were willing to pay twice what the store price was just to get their hands on it first. The moral is, the more buyers there are for a particular stock, in the short-term, the higher the price will go. Similarly, the more sellers there are of a particularly stock, in the short-term, the lower the stock will go. That's essentially how stocks work.

Warren Buffett, one of the greatest investors of all time (and the world's third richest man), advises investors though that in the long-term, a stock's price will eventually reflect its true value. What does this mean? Okay, think about it this way. One of my favorite cars, a BMW 325i, costs about $40,000. If you were the proud owner of a new 325i, and someone offered you $10,000 for your car, you would balk. Why? Because you know how much your car is worth. Similarly, in the short-term, lots of people might be selling the stock you own, or offering you a lower price for your stock than you paid. But if you know the true value of your stock because you did your due diligence about its growth prospects and vetted its financial statements, then you will not accept a ludicrously low price for your stock or your BMW. (This was an example and a car, no matter how expensive, does not represent an asset. It's undoubtedly a liability!)

Lastly, what do those terms "Dow", "Nasdaq", and "S&P 500" mean? All of these things are indexes and an index is a representative cross-section of the universe of companies that have stocks for the public to buy. For instance, the Dow (aka the Dow Jones, the Dow Jones Industrial Average, the Dow 30) consists of the 30 largest publicly-traded American companies. These companies change every so often, but currently the Dow consists of companies like McDonald's, Microsoft, Johnson & Johnson, AT&T, Coca-Cola, Citigroup, and Wal-Mart, just to name a few. So when you hear on the news that "the Dow" crossed 14,000 for the first time, this just means that a mathematical equation calculating the worth of these 30 companies spit out the number 14,000. The Dow is also a broad indicator of the health of the economy.

The Nasdaq index contains more companies than the Dow, but it is mainly composed of technology companies like Apple, Cisco Systems, and Google. This is the index that was hurt the most in the last economic downturn that began in 2001, when the "tech bubble" burst. The S&P 500, which stands for Standard and Poor's 500 is an index that is composed of America's 500 largest companies. The S&P 500, often referred to as the S&P, is a better gauge of the health of the economy because when people are spending, these 500 companies are earning. The value of the S&P, like the Nasdaq and the Dow, is determined by a complex equation which factors in the value of the stocks of which it composed.

If you want more information, you can check out www.investopedia.com. This is a great resource for budding investors. Thanks for reading and until next time...

9 comments:

oakleyses said...

jordan shoes, prada handbags, nike air max, nike air max, kate spade handbags, louis vuitton outlet online, christian louboutin, coach outlet store online, oakley vault, longchamp handbags, red bottom shoes, coach outlet, michael kors outlet online, christian louboutin outlet, longchamp outlet, nike free, true religion outlet, christian louboutin shoes, tiffany and co jewelry, louis vuitton outlet, michael kors outlet store, gucci handbags, louis vuitton outlet, longchamp outlet online, louis vuitton handbags, chanel handbags, ray ban sunglasses, polo ralph lauren, true religion, michael kors outlet online, burberry outlet online, cheap oakley sunglasses, tory burch outlet, michael kors outlet, coach purses, polo ralph lauren outlet, burberry outlet online, ray ban outlet, kate spade outlet online, michael kors outlet online, tiffany jewelry, oakley sunglasses, nike shoes, louis vuitton, coach outlet, prada outlet, michael kors outlet online

oakleyses said...

ray ban pas cher, ray ban uk, chaussure louboutin, hermes pas cher, air jordan, new balance pas cher, nike roshe run, louis vuitton pas cher, true religion jeans, lululemon, nike air max, nike roshe, nike blazer pas cher, nike air max, nike free, michael kors canada, hollister, ralph lauren pas cher, sac vanessa bruno, louis vuitton, burberry pas cher, longchamp, nike air force, converse pas cher, abercrombie and fitch, nike free pas cher, air max pas cher, ralph lauren, vans pas cher, sac michael kors, north face pas cher, sac louis vuitton, michael kors uk, scarpe hogan, hollister, guess pas cher, north face, timberland, true religion outlet, air max, barbour, longchamp pas cher, louis vuitton uk, tn pas cher, oakley pas cher, lacoste pas cher, mulberry

oakleyses said...

roshe run, bottega veneta, celine handbags, jimmy choo shoes, mac cosmetics, canada goose outlet, lululemon outlet, rolex watches, new balance outlet, beats headphones, giuseppe zanotti, mont blanc pens, vans outlet, marc jacobs outlet, ugg soldes, ugg boots, chi flat iron, canada goose outlet, instyler ionic styler, uggs outlet, north face outlet, mcm handbags, insanity workout, nike trainers, wedding dresses, p90x workout, ugg outlet, hollister, ferragamo shoes, herve leger, abercrombie and fitch, soccer shoes, uggs on sale, ugg, valentino shoes, longchamp, nike huarache, north face jackets, ghd, babyliss pro, canada goose, asics shoes, nfl jerseys, reebok shoes, birkin bag, canada goose outlet, soccer jerseys

oakleyses said...

canada goose, moncler, pandora charms, toms outlet, lancel, pandora uk, moncler, links of london uk, parajumpers outlet, oakley, moncler, nike air max, converse shoes, juicy couture outlet, louis vuitton canada, baseball bats, ray ban, swarovski uk, replica watches, moncler, supra shoes, gucci, ugg, converse, air max, vans, hollister canada, canada goose uk, moncler, timberland shoes, canada goose, ralph lauren, thomas sabo uk, uggs canada, iphone 6 case, wedding dress, canada goose pas cher, montre femme, moncler outlet, hollister clothing, swarovski jewelry, pandora jewelry, hollister, coach outlet, karen millen, moncler, louboutin, juicy couture outlet

Zheng junxai5 said...

2015-09-02 zhengjx
jeremy scott adidas
tory burch outlet
gucci shoes
louis vuitton handbags
mcm outlet
louis vuitton outlet
louis vuitton handbags
hollister clothing store
michael kors outlet
louis vuitton handbags
michael kors
louis vuitton
louis vuitton handbags
coach outlet store online
celine luggage tote
ray ban uk store
caoch outlet
air force 1 trainers
kate spade outlet
fitflops
toms wedges
jordan 3 white cenment
polo ralph lauren
air max uk
toms outlet
michael kors outlet
coach outlet store online
coach factory outlet
louboutin
michael kors
louis vuitton handbags
christian louboutin shoes
air max
air jordan 13
louis vuitton bags
michael kors outlet
toms outlet
louis vuitton
michael kors outlet online
jordan 4 retro

ninest123 said...

ninest123 16.04
nike air max, louis vuitton outlet, louis vuitton outlet, ugg boots, prada outlet, replica watches, tiffany jewelry, louboutin, coach purses, oakley sunglasses, nike free, nike outlet, gucci outlet, louis vuitton, uggs on sale, tiffany and co, christian louboutin outlet, louis vuitton, ray ban sunglasses, prada handbags, kate spade outlet, louboutin shoes, true religion jeans, coach outlet, ugg boots, nike air max, cheap oakley sunglasses, kate spade handbags, oakley sunglasses, louboutin outlet, polo ralph lauren outlet, ray ban sunglasses, replica watches, chanel handbags, longchamp outlet, true religion jeans, true religion outlet, coach outlet, polo ralph lauren outlet, replica handbags, tory burch outlet, longchamp, longchamp outlet, jordan shoes, oakley sunglasses, ray ban sunglasses, oakley sunglasses, true religion jeans, louis vuitton

ninest123 said...

soccer shoes, p90x workout, giuseppe zanotti, asics running shoes, nike trainers, birkin bag, nike huarache, hollister, jimmy choo shoes, chi flat iron, iphone 6s cases, louboutin, soccer jerseys, ralph lauren, iphone 6 plus cases, lululemon, reebok shoes, north face outlet, ipad cases, iphone 6 cases, hollister, bottega veneta, wedding dresses, nike air max, new balance, baseball bats, iphone cases, ferragamo shoes, mont blanc, s5 cases, herve leger, celine handbags, vans shoes, mac cosmetics, ghd, instyler, nike roshe, nfl jerseys, babyliss, north face outlet, insanity workout, valentino shoes, nike air max, iphone 5s cases, hollister, mcm handbags, iphone 6s plus cases, abercrombie and fitch, longchamp, timberland boots, oakley, beats by dre

ninest123 said...

ugg,uggs,uggs canada, ugg boots uk, moncler, swarovski crystal, swarovski, hollister, juicy couture outlet, moncler, moncler, pandora charms, ugg pas cher, moncler, canada goose, louis vuitton, canada goose, canada goose outlet, vans, wedding dresses, louis vuitton, replica watches, bottes ugg, louis vuitton, moncler outlet, sac louis vuitton pas cher, thomas sabo, supra shoes, ugg,ugg australia,ugg italia, doudoune canada goose, coach outlet, moncler, pandora jewelry, moncler, barbour jackets, moncler, barbour, converse, gucci, marc jacobs, lancel, karen millen, pandora charms, canada goose, louis vuitton, canada goose uk, montre pas cher, links of london, pandora jewelry, juicy couture outlet, converse outlet, canada goose outlet, toms shoes, ray ban, canada goose
ninest123 16.04

Zheng junxai5 said...

zhengjx20160415
christian louboutin sale clearance
michael kors outlet online
louis vuitton outlet
montblanc pen
michael kors bags
coach outlet
ralph lauren
fitflop clearance
air jordan shoes
oakley sunglasses
louis vuitton outlet
nike store uk
nike roshe one
louboutin shoes
louis vuitton outlet
michael kors outlet
lebron james shoes 13
ray ban outlet
ralph lauren
air jordan shoes
ray ban outlet
michael kors
nike uk
tiffany and co
oakley outlet
coach outlet
ray ban outlet
fitflops
air jordan 8
mont blanc pen
coach outlet online
ralph lauren outlet
abercrombie outlet
coach outlet
adidas originals
true religion jeans
michael kors outlet
air force 1 trainers
red bottom shoes
canada goose outlet
michael kors outlet