Investing and the Stock Market for the Lost Gen-Z

ControlTheNarrative, or “GUH”, sufficiently leveraging for his personal risk tolerance. Don’t do this.

The Early Market

Stock is a term used to represent ownership of a company. Investors are commonly known as stockholders or shareholders. Shareholders own “shares”, or percentages, of a company, effectively representing a percentage of a company’s total revenue and debt. As a company becomes more or less valuable, so too does its stock to better represent its value.

People bidding in line at the stock market.

The Modern Market

Fast forward to modern times, the internet has revolutionized the stock trading landscape. It is now easier than ever to access information on investing and become wealthy without ever needing the guidance of a financial advisor. Buying and selling of stock is now primarily online, allowing you to trade stock from the comfort of your home. The internet has brought forth the rise of the retail investor. As of December 2020, retail investors, or non-professional investors, collectively own over $29 Trillion worth of equity, over 58% of the total U.S. market. This growth has spurred massive advancements and discussion on the future of investing for the average consumer.

Market Mechanics

Supply and Demand

You’ve heard it once, and you’ll hear it again to perpetuity. Supply and Demand is the root of all economics, and by extension, the key to the stock market. As of the writing of this article, Tesla Inc is currently trading at $749.34 per share at a price/earnings (P/E) ratio of 1,175.54, meaning that for every dollar that Tesla earns, the overall market is offering to pay Tesla $1,175.54 for it. On paper that sounds ridiculous. However, when you factor in that Tesla’s share price has grown over 1000% in only the past two years, you realize that you’ve only scraped the surface.

Company Valuation Methods

The ultimate goal of investing (unless if you’re a short seller) is to purchase a stock when its price is at its lowest and sell once it’s reached as high of a price as it can go, otherwise known as buying high and selling low. Valuation is the analytical process of determining the current or projected worth of a company. There are two main methods for company valuation: absolute and relative. These methods exist to help investors determine the ‘fair value’ of a company. If a technique determines a company to be undervalued — that is, the company is selling at a price significantly below what is assumed to be its fair value price — an investor would be encouraged to purchase shares and sell them later for a profit. The opposite is true if a technique determines a company to be overvalued: sell shares if you own them or decide not to buy them in the first place.

Excel spreadsheet of equations

Diversification

Diversification is the concept of not putting your eggs all in one basket. Risk management is the name of the game for investing and gives you confidence that your entire portfolio won’t sink if a big-time CEO makes an unfavorable tweet. Diversification can be achieved through different methods, including between different types of assets — real estate, bonds, stocks, etc. — or within investing in different industries within a security — commodities, technology, etc.

Further Readings

What has been discussed in this document is nowhere near what the investment world has to offer; however, hopefully it’s enough to help you understand the thinking and rationale that goes into making investments.

  • Brokerage
  • Asset
  • Security
  • Expense Ratios
  • Index/Mutual Funds
  • ETF
  • Bonds
  • Interest Rate

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Noah Chong

Noah Chong

Co-Founder of Harpie. Has 101 hobbies.