Wednesday, June 25, 2008

Learn the lingo: Stock

Ever found yourself nodding knowingly at a cocktail party, martini in hand, in the midst of a gaggle of guys discussing the stock market?

They may think you're on par with the latest stock gossip, but if you're like most women, your knowledge of the market is dreadfully limited. While the men discuss EPSs, assets and balance sheets, you're single desperate thought is "Please don't ask me anything and blow my charade!" Well, us girls need not play the charade any longer -- if not only to further our moolah -- to hold our own with the big boys. The stock market, like most things in the financial world, is as easy as pie, after all. With that in mind, let's start from home plate: What does "stock" really mean, anyway?

Ever wanted to play high-powered corporate business exec for a while? Well then buy some stock, or shares, in a corporation. Doing so gives you part ownership in the company. You may not get the Blackberry, Benz and Yves Saint Laurent wardrobe that go along with being the business exec, but a girl can dream as she's purchasing shares of Google, right?

When you buy a company's stock, you are buying claim on their earnings and assets, aka what they're worth. Thus, when they profit, you profit. On the flip side, if they lose money, you also go under, but that risk comes with the territory of stock trading.

You can only buy stock in public companies, which means ones that are trading on stock exchanges such as the NYSE or Nasdaq (yes, that Nasdaq). There are many different stock exchanges in countries all over the world, ranging from the Nikkei Index in Japan and the Hang Seng in China, to the DAX exchange in Germany and the Sao Paolo Exchange in Brazil. All these jet-setting stock market terms are starting to sound kind of glamorous, right? Pepper your conversation with them next time anything stock market comes up -- I guarantee you'll impress!

But I digress. By being a "public" company, which again means you can buy a percentage of them, they are required to file their financial results every quarter (or about 4 times per year). These are usually called earnings statements (there's another term to throw out there at your next cocktail party), and they tell you, the shareholder, how their business has been doing in the last few months. Think of it as a report card, telling you how your child is doing in school. If companies don't publicly show their "report cards" to their parents, or shareholders, than oftentimes the company can get delisted from the exchange it's on. Sometimes, even criminal charges can be filed against the company's board of directors!

Owning stock in a company often gives the shareholder the right to elect the head honchos that run the corporation, depending on how much of a percentage of the corporation they own. Ever heard of Warren Buffett (aka "The Oracle of Omaha")? Maybe not, but he's made a living buying big into companies, and in many he owns such a large percentage (try 55%) that he gets a say on who he thinks should be running it. Pretty fabulous, huh?

But before you start fantasizing about your laser-pointer power trips in large boardrooms flanked with men in suits as far as the eye can see, do know that investing in stocks like our buddy Warren takes thousands, if not millions, of dollars, so I'm going to go out on a limb here and say us girls on a budget *probably* won't be attaining that status anytime soon.

One more key point to note is that while "stock" is a general, all-encompassing term, there are different types of company stock. These can include:
  • Common Stock
  • Preferred Stock
  • Voting
  • Non-Voting
And with that, you should now have enough vital knowledge of what a "stock" is to hold your own in any social situation and leverage your savings to boot!

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