Stock Knowledge for Beginners

Stocks are shares of businesses. People generate profits in the stock market through stock prices going up and then shareholders being paid out. Stockbrokers concentrate on purchasing and selling stocks, and investment bankers provide advice on financial decisions that companies make. 

I wanted to learn about stocks to make money. My dad first told me about it, and I saw it all over social media. It looked fun how people made money off of it. I made small profits in shares of gold, but I wanted to know how people make more money. 

Losses are a part of investing in stocks. Short selling or going short is a way you can make money while the stock market price is going down. How this works is you borrow shares from your broker and you immediately sell these borrowed shares on the open market at the current price, and later you buy the same number of shares that you borrowed from your broker at a lower price then you return the borrowed shares back to your broker and keep the difference as profit.

A year in Apple stock. Image credit: https://www.tradingview.com/free-charting-libraries/

I interviewed an investment banker, Jason Yen, and asked him some questions and these were his answers. 

DeVaughn Albright: What is the difference between an investment banker and a stock broker? 

Jason Yen: What investment bankers do is that we act as financial advisors to the executives of companies (CEO, CFO, Board of Directors) to help them with making strategic financial decisions related to their company. For example, if a company wants to buy another company, a company will hire investment bankers to advise them through the entire process (very similar to a real estate agent) of evaluating the company they want to buy, determining what the company is worth, structuring the terms of the purchase, and helping negotiating with the counterparty to come to an agreement.    

Stock brokers on the other hand typically act as financial advisors to individual investors and help them make trades of stock or other investment securities that the individual investor may want to buy or sell.

DV: What did you do to get where you are now? Education, first jobs, etc?

JY: I studied electrical engineering at Cooper Union and wanted to be an engineer when I graduated. I worked at Lockheed Martin as an engineer focused on navigation for our nuclear submarine program.  While I was at Lockheed Martin, the company bought and sold a couple of companies that caught my interest and made me interested in pursuing a career in investment banking. I went to NYU for my Masters in Business Administration  which allowed me to make that switch.

DV: What does a typical day look like for you?

JY: I typically start my day around 8am and start checking emails from the night before that may consist of client emails, work from my team that I need to review, market updates, etc. I prepare a list of things that will need to be done by priority for the day and start checking in with my deal teams on various workstreams. At any point in time, I may be working on a number of live M&A deals (which means active situations where our client may be trying to buy or sell a company). The day usually consists of a number of client meetings, internal meetings with my different teams as well as doing work for my different deals. 

DV: What are your thoughts about investing personal money in the stock market? If you invest other people’s money, do you invest your own too?

I believe investing in the stock market is a good way to build wealth as long you do it consistently and have a long term time horizon. As an investment banker, we're not able to buy individual stocks ourselves so am usually investing in ETFs or Exchange Traded Funds that represent a basket of a number of different stocks such as the S&P 500 or QQQ. 

DV: What do you do when investments take major losses? Do you lose money personally when the stock market goes down?

JY: It depends on the situation. If you believe there is a better investment, you may decide to sell and invest in something else. The loss from your stock being down can be harvested and offset future gain on your other stock investments. If you are invested in the stock market, yes you will personally lose money when the stock market goes down. But the loss is not realized as you have not sold the stock. Sometimes a down market is a great opportunity to buy stocks (one example being the Great Financial Crisis in 2008). You can see how much the stock market has rebounded since the crash during that time.