MT8 | Basics Of The Stock Market

So you’ve grown too ripe, old adulthood and your friends are all ballers in the stock market – but you still don’t know the first thing about how it works? Don’t worry – that’s why we’re here! In this episode we use a fictitious company, showing its journey from startup to IPO and beyond in order to illustrate how stocks are priced and the basics of how the stock market works.

Discussion Topics: Basics of the Stock Market

• Introducing Fidget Spinners International
• Opening scene: my one-on-one with my boss (and son!), the CEO
• What’s a stock (or share)? Why do we need to sell any of it to others?
• How is the share price first set? What does the ‘face value’ of a share mean?
• How an accountant would value shares in a running business – the ‘book value’
• A better approach to price shares in a growing business – revenue or profit multiples (and a snide dig at WeWork!)
• The concept of share issuance as preparation for the sale of shares in the stock market
• Fast forward to the day of our IPO – the Initial Public Offering of shares to the public and the first few minutes as a newly-listed public company
• Pricing based on fundamentals 1 of 3: Estimating the Price to Earnings ratio and pricing stocks on that basis
• Pricing based on Fundamentals 2 of 3: Estimating the Price to Book Value ratio of a company and pricing stocks based on Book Value per share
• Pricing based on Fundamentals 3 of 3: Understanding dividends and pricing a share based on a target Dividend Yield
• How you could blend multiple approaches in order to price stock in a more holistic manner
• Factors that influence the stock price on a realtime basis 1 of 3: Sentiment or momentum
• Factors that influence the stock price on a realtime basis 2 of 3: Liquidity, the amount of money flowing into the market
• Factors that influence the stock price on a realtime basis 3 of 3: Alternative investments that might be more or less attractive than stocks at any given point in time
• Recap of the episode
• How much might Fidget Spinners International be worth in a few years? Or tomorrow?

Hi, everyone, welcome to another episode of MoneyTok, where we help make personal finance and investing simple and accessible through both my own experience. I’ve been doing this for about 20 years now. This show is about money and wealth creation. And we talk about so many ways of making money, bought retirement planning about stocks, bonds, gold, real estate, crypto, so many kinds of things.