I'm always getting emails from folks telling me how badly they want to make money in the markets.
The problem is that a good many of these readers confess that they are literally just getting started.
So right now, I'm going to begin at the beginning – and show you how to make money in the markets from square one.
Today is all about stocks.
In future columns, I'm going to talk about bonds. After that I'll get into options, futures, and other derivatives (they're easy).
And finally I'll show you how they all – stocks, bonds, options, futures, and derivatives – come together every day.
When it's all said and done, I promise you will understand everything about investing and marvel at how simple it all is.
You'll know more than your friends – even more than most brokers. And you'll start "seeing" the money in the markets.
So, let's get started.
Here are the absolute basics, the things you need to know about stocks…
Investing from Square One
Stocks, traditionally, are "shares" in a corporation. The words "stocks" and "shares" can be used interchangeably. These days you can buy shares or stock in other business structures like limited partnerships and limited liability companies, as well as other entity structures.
But the concept is the same; you're buying shares. For our purposes we're going to be talking about shares and stocks of corporations.
When you buy a share of stock, you are literally buying a share in the equity of that company.
Companies raise money by selling ownership interests to investors and the public. Equity is the business term for an ownership interest. Ownership interests take the form of shares of stock in the company. That's why the words "stocks" and "shares" and "equities" are all interchangeable.
Now let me show you how it all works – using Facebook Inc. (Nasdaq: FB) as an example.
Before Facebook went public in its IPO (initial public offering), it had raised money privately by selling ownership interests in their business to venture capitalists and other institutional investors.
Institutional investors can be public companies or private companies, and their business is to invest large sums of money. Mutual funds are institutional investors, and so are hedge funds and private equity companies and trust departments at banks and venture capital companies.
As Facebook was getting bigger, Mark Zuckerberg, his original partners, and the investors who had given the company money in return for their equity interest in Facebook, wanted to raise more money to expand the business and to "monetize" their investments or create an "exit" for themselves.
Because interest in Facebook was enormous, the company attracted a lot of "inside" investors who put up money to own a piece of the company. Eventually Facebook attracted 500 investors who gave it money in return for equity shares.
Understanding When You Can Buy
There are rules about how many investors a non-public company can have.
A company can "go public" when it wants to sell more ownership interests or shares to more investors after it has reached the 500-investor limit.
That's what Facebook did. The company decided it would offer shares to public investors like you and me and institutional investors.
Now, when a company hits the 500-investor limit, it doesn't mean they have to go public. It can stay private and raise more money from the 500 investors it already has.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.