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Last Updated: Sunday, 28 November 2021 05:03

Published: Wednesday, 08 April 2020 14:00

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This section deals with stocks or equities. These are the things that trade on stock market under various ticker symbols. People have made a lot of money via investing in stocks. To invest in stocks, you will need to open a brokerage account. I'll be writing specifically about USA stock market. But before that, some introduction:

Intro:

Time an again, I've seen everyone being fascinated by the stock market, and the insane amount of money that can be made from it. So, let me try to dissect into what stocks are:

In old times, people used to have their business, that they had built with their saved money. they used to make some profit from that business. Part of the profit was used to run their family, some part of it was saved, while the remaining portion was put back into business to grow the business.

Buying stocks or equity is the process of becoming a partner in the company. In simple terms, bunch of people come together, each contributes some money, and a business is set up to sell or buy stuff, and in the process make money. When the business makes profit, it's distributed to the partners based on the amount each contributed to setup that business.

That used to be the old and simple way. Now-a-days, a person starts a company. Then he goes to some big investors asking for money. They give him money in exchange for some stake in the company. The company barely becomes profitable in a couple of years. Then these investors try to make company public. Making a company public is the process of allowing other people to become partners in the company. The problem is that 100% of the company is already owned by the existing partners. There are only 2 solutions to this: either the existing owners sell a part of their equity for other people to by, or the company prints more stocks and sells the newly minted extra stocks. Newly minted extra stocks dilutes the % ownership of existing partners. for ex, if the company had total 1M stocks which were distributed amongst existing partners, then they combined owned 100% of the company,  However, if the company now prints 4M more stocks and sells it to another person, then the existing partners only own 1M/5M = 20% of the company, while the new buyer owns 4M/5M=80% of the company. This is how companies go public: by printing more stocks, rather than asking existing partners to sell their stocks to new investors.

Good websites:

https://www.optimizedportfolio.com => Very good informative and common sense investing advice. We'll dig into more of this later.

Reading material:

There is no dearth of reading material on internet relating to stocks. I've listed some financial Books to be Read:

1. The intelligent investor = By Benjamin Graham (one of the books that warren buffet considers bible of value investing)
2. Irrational Exuberance = By J. shiller (ok book to understand irrational physcology of masses)
3. Understanding corporate annual reports = by Brian stanko and Thomas Zeller (very concisely written book to help you understand 10K filings)
4. A random walk down wall street = by burton G. Malkiel (very good book which is all for efficient market theory and suggesting that you can never beat the market. nice to have a contrary perspective)
5. How to pick stocks like warren buffet = by Timothy Vick (very good book explaining basics)
6. One up on wall street = by Peter Lynch ( I haven't read this book, but this is considered to be bible by many. Since Peter Lynch became a very successful investor with no financial background, this book is more about common sense investing).
7. The DhanDho Investor = by Mohnish Pabrai ( I haven't read this book, but have heard a lot about it. Mohnish Pabrai has become very successful investor following Warren Buffett value investing techniques. Mohnish also talks about how Gujratis became so successful here even with total risk aversion).