Intro. to the Stock Market

• What exactly is a stock and why do companies sell stock in the first place?

A stock is a share of ownership in a company. Owners of stock receive part of the company's profits, or losses up to the amount of money they put into the stock. Companies sell stock because by selling shares they can sell part or all of the company to many part-owners and share responsibilities and expenses.

• What is the difference between a public and a private company?

In a privately held company, the shares of stock are owned by a small number of people. They buy and sell their shares amongst themselves. A publicly held company is owned by thousands of people who trade their shares on a public stock exchange.

• What is the Dow Jones Industrial Average?

The Dow Jones Industrial Average is simply the average value of 30 large, industrial stocks created by nineteenth century Wall Street editor and Dow Jones & Company co-founder Charles Dow. Big companies like General Motors, Goodyear, IBM and Exxon are the kinds of companies that make up this index.

• What is a blue chip stock?

A blue chip is the nickname for a stock that is thought to be safe, in excellent financial shape and known as a leader in its field. Most blue chip stocks pay regular dividends, even when business is worse than usual. The term derives from casino, where blue chips stand for counters of the highest value.

• What is the New York Stock Exchange and the NASDAQ?

The New York Stock Exchange (NYSE), nicknamed the "Big Board," is a New York City-based stock exchange. It is the largest stock exchange in the world. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. NASDAQ is an acronym standing for National Association of Securities Dealers Automated Quotations and is a major world stock market. NASDAQ is the world's first electronic stock market.

• What is a mutual fund?

A mutual fund is nothing more than a collection of stocks or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

• What is the PE ratio of a stock?

The PE ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income.

• What is a stock dividend?

A dividend paid to stockholders in shares of stock, often used in place of or in addition to a dividend paid in cash.