Why Does the Stock Market Go Up?

Text in black are quotes; text in green are my notes. I sometimes write in Spanish.

• A stock represents partial ownership of a corporation. The owners of the stock are called ‘stockholders’ or ‘shareholders’. #

• A dividend is when a company gives some of its profits—which are also called ‘earnings’ or ‘net income’—back to its shareholders. #

• It’s kind of like a farmer’s market, but instead of trading money for food, you trade money for shares in businesses. #

• A stock market index is a basket of stocks that are used to help investors track the performance of the stock market as a whole. #

• The NASDAQ composite index is a stock market index that tracks the price movements of all the companies that are listed on the NASDAQ stock exchange. #

• However, over the long-term, the price of a stock always follows the earnings of the company. #

• The best time to invest is when the economy is doing terribly. #

• That’s because in the short-term, market prices are controlled by the collective emotions of investors. #

• the dividend yield is calculated by dividing a stock or fund’s dividend payment per share by its current share price. If the share price is falling because the business is in trouble, the dividend yield gets bigger. #

• Bonds are generally viewed as lower-risk investments than stocks. That’s because they have ‘seniority’ over stocks, which means they must be paid off first in the event of a bankruptcy. #

• The key point to remember is this: stock splits do not create any value for investors. They only increase the total number of shares and reduce the dollar price of a single share. #