The Stock Market Explained in a Way Anyone Can Understand

It’s one of those things that can overwhelm us before we even begin: the stock market.

Unless we have a finance degree or just a keen interest to really dive in and figure it all out, the stock market can remain an elusive web of numbers and acronyms that we’ll get around to understanding “someday.” When we’re older. And wealthier. And generally have the rest of our life in place.

But do we really need to wait? And more importantly, should we be waiting if it’s actually far easier and more attainable to invest in the stock market right now, right where we are?

Meet Jerremy Alexander Newsome. He’s made it his personal mission to de-mystify the stock market so that anyone, yes anyone, can obtain financial freedom. He’s chock-full of down-to-earth, realtime advice, so we picked his brain for both our benefit and yours to (finally!) understand what the stock market can offer.

Turns out it’s nowhere near as complicated as we thought.

Darling Magazine: OK, so what exactly is the stock market?

Jerremy: Well, we all know what a market is. Think farmers market or flea market. It’s just a place where people get together just to buy and sell items, right? The stock market is simply a market where people from all over the world buy and sell stock.

Let’s breakdown the word that really confuses the most people. Stock. Stock is synonymous with the word “shares” and also “equity.” (This is the part where most people get bored out of their minds, but it’s really quite fascinating.) A stock is just an instrument or tool used by a company to keep track of ownership.

Here’s a quick example: Say I wanted to start a company, “Mittens for Kittens,” where I sell hand-made mittens for kittens. (This doesn’t sound very lucrative idea, but stick with me.) If myself and my two sisters ran this company and we were going into debt buying tons of yarn, how could we get more money to keep the business afloat?

We could get a loan from a bank. Or we could sell stock in the company. [Now, obviously there are numerous other ways to get more money. This is for brevity.]

If we sell stock in the company to our friends, then our friends would in turn give us money to “share” ownership of the company. This would be verifiable by the “stock” they owned. Why would our friends do this? The main benefit, of course, is a monetary one. If Mittens for Kittens becomes a raving, massive success and gets bought out by Coach Inc. for 10 million dollars, then anyone who owned stock would legally own or be included to receive a percentage of that 10 million, subject to how many stock (or shares) they owned.

DM: What do those little acronyms mean?

Jerremy: This part is really easy to understand actually. Just like if you watch ESPN, they show the scores of the sports team with their logo next to it. Each stock is assigned it’s own symbol (called a ticker). For example, Apple Inc. is AAPL, Netflix is NFLX and SnapChat is SNAP. It’s just simply a way to keep track of companies.

DM: How does stock earn someone money? Do you need a lot of money or a professional broker to get started?

Jerremy: If I would be so bold to continue with the Mittens and Kittens theory, as outlandish as it might sound. Say I sold 100 mittens in my first year of business. Then the second year in business I sold 20,000 mittens. Then in my third year, I sold 1,000,000. This would be seen as growth. Growth, in any business, is vital. Growth in a company is how people make money if they’ve bought stock while it grows!

Pretend in 2015 you had $3,000 and wanted to buy stock of Wal-Mart. And remember, buying stock means you actually buy some ownership of Wal-Mart (ticker WMT). How much ownership of WMT did you buy? Something like .00000015%. Nonetheless, you are an owner!

So November, 2015 WMT was trading at $57 per share. Meaning, if you wanted to buy one singular piece of stock in Wal-Mart, you would be spending $57. If you had taken that $3,000 you could have bought 52 shares. 3,000 / 57 = 52.6315

Since you can no longer buy fractional shares, this means you would literally own 52 pieces of stock or shares of WMT. Total value 52 x $57(the hypothetical buying price in Nov 2015) = $2,964.

As of this writing, those 52 pieces of stock are worth $78.15 per share. Therefore $78.15 x 52 (the amount shares you bought) = $4,063.80

WHOA. That’s $4,063 [how much those 52 shares are worth now] – $2,964 [how much you bought them for] = $1,099.80 profit! Meaning you made over 1 grand, or 30% ROI without having to actually do anything. Your money did all the work for you.

Therefore: No, you do not need a bunch of money to get started; there are countless brokers out there, most of which anyone can access simply through an app on their phone. Sure, you’ve got to start with some money, but that’s like anything in life. You can’t take one class in medical school and become a doctor. Yes, you do need a broker to trade in the stock market, but it does not have to be a real person. Nowadays you can accomplish everything you need through your phone or laptop.

Growth, in any business, is vital. Growth in a company is how people make money if they’ve bought stock while it grows.

DM: Explain the concept of being an “owner, not a buyer.”

Jerremy: Owning things that go up in value is the key to wealth. It’s just that simple. The two greatest fields of investing are real estate and the stock market. Over 90% of the worlds millionaires got their wealth from either stocks or real estate (often a combination of both). 90%! That’s HUGE! Literally, if you truly want to become wealthy, it’s an industry you must learn.

In the above example, WMT stock “paid you” over $1,000. That’s how much value you received back, just from buying into the company. How much money do you spend each month at the grocery store? According to the U.S. Bureau of Labor Statistics, the average American family spends about $330 each. That’s over $4,000 a year. We all have to eat, so wouldn’t it be nice to have a store like Whole Foods (WFM) or Kroger (KR) or Wal-Mart (WMT) pay us to shop there?!

For example, I like beer. Investing $5,000 worth of Anheuser Busch (BUD) back in November 2016 would be worth $5,784 right now! That’s $784 in just beer money, which should last me all the way into January 2018, if I’m lucky.

How is this relevant for today’s 20-something woman? Very relevant. Exceptionally and incredibly important. Crucial. This “investing stuff” takes time. To really understand the concept of being an owner rather than a buyer, pretend you spent just $500 and bought some Netflix (NFLX) stock 10 years ago. It’s honestly a challenge to figure out exactly how much money you would have. But it’s about $110,000! Yeah. That’s life changing money right there. ALL because you decided to become an owner rather than a buyer. A buyer would just pay their $9.99 a month subscription forever. There’s no financial reward from that.

And there are stories like this all the time. It’s really not that rare. If you can answer the three questions below, then you probably know of a company where you would rather be an owner than a buyer. In turn, becoming an owner could ensure the financial security of yourself and your family, if done properly!

3 Questions to Determine If You Should Own Stock in a Company:

1. Do I interact with this company on a daily basis? Companies like Facebook, Starbucks, Netflix, Kroger, Wal-mart, Verizon, Visa and so on…
2. Do I know how the company makes money? (This one just takes 5-10 minutes to actually think about. Maybe you have to ask someone or do some quick online research, but it’s easy to determine. I’m happy to help, also!)
3. Do I LOVE this company, their products and do I spend my money there? IF you spend money at a place constantly and you know hundreds of others who constantly shop there and spend money, then the chances are you know of a company where you could invest in and become an owner!

DM: What’s the difference between private and public equity?

Jerremy: Great question. So, private equity just means it’s not on the public stock market. The most popular examples of private companies are Moe’s Southwest Grill, Publix and Chick-fil-a. Neither are on the stock market (therefore, they are private, not public). There are a lot of pros and cons, but that conversation will cause me to go down a deep and dark rabbit hole and I’ll lose most of you. To keep it simple, when a stock is public, anyone in the world can buy or sell at anytime. Literally, whenever they want.

If you own stock in a private company, the buying and selling process can slow down drastically. However, the rewards can be even greater in private companies! I mean seriously, a $500 stock investment into Publix 10 years ago is probably worth close to what I showed above on the NFLX example.

DM: How can knowing about the stock market be empowering for women, in particular?

Jerremy: Alright, now we are getting to the meat of this! Yes, I love it. The mission of my company is to enrich lives.

You see, my mom is a true saint of a person. Incredible in every way. But when my dad died two years ago, she was totally caught off-guard and didn’t have a clue about finances. My girlfriend used to work in a bank a few months back and she would come home and tell me horror story after painful story of divorce or infidelity where a wife would be left in some serious financial straits.

But more importantly than that, I’ve run a successful stock market education company for years now. And the best traders and investors (time and time again) are women. Even though I will get ostracized by some (which is okay), women are actually more logical and less emotional when it comes to finances. They don’t have an ego tied to money, which can create an amazing recipe for success! I know more guys who have gone broke sheerly because of their ego and their fear of being wrong.

… women are actually more logical and less emotional when it comes to finances. They don’t have an ego tied to money, which can create an amazing recipe for success!

Both genders can easily fall victim to the stereotypes of what we “ought to do” with our lives. When you remove money from the equation, however, you get a different path for the majority of people! When the question, “What would you do in life if money was no object?” is asked, usually the answer is different from what someone is doing right now, which is insane! Because in the answer of that question lies your passion, your drive, your focus and your ambition!

The stock market is just one avenue for women to become financially free and independent. Everyone wants abundant resources so we can live the life that was designed for us. The only question is, will you live and learn like no one else now, so you can live and learn like no one else in the future?

Are you interested in the stock market? What other financial topics would you like to learn more about?

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Images via Anastasia Casey of The Identité Collective