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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.