How to buy stocks

0:00- [Instructor] So let's talk a little bit about how to buy stocks. So before I even tell you what you're buying, let's just remind ourselves what a stock is. So if I have a company, a stock is literally a share of that company. I could go into depth on assets and liabilities and equity, and actually you should look at that kind of stuff if you are actually going to be trying to value stocks.

0:25But generally speaking, if a company is worth, let's say, $1 billion, 1 billion, and let's say that's all of its assets minus its liabilities, so that's what's left over. Oftentimes, you could view that as the owner's equity. But let's say that's $1 billion. And then they issue, this $1 billion is split amongst 1 billion shares.

0:51So maybe that's the first share, share one, share two. And we're gonna go all the way to share 1 billion. Then that would imply that each of these shares are worth $1. How did I know that? 1 billion divided by 1 billion shares is $1. Another way to think about it is, if I know that there's a billion shares outstanding, and each of them are, say, trading for a dollar, then the company is worth $1 billion.

1:21That's what its market cap is. And we go into a lot of that into other videos. I've seen people say, "Oh, that's a $1 stock. It's cheap." Well, no, you don't know whether it's cheap or expensive. You have to look at how many shares there are. And then what does that company actually do?

1:36How much money do they actually make, if they make money at all? Or how much might they in the future be able to make? If you're not thinking about those things, just looking optically at the price and saying, "Oh, $1 versus $100," it doesn't mean that the $1 stock is necessarily cheaper.

1:52But for whatever reason, let's say you did your research. Or you didn't. Unfortunately, I think a lot of people don't. But you decide that you want to get into stocks, and you wanna start buying stocks. How do you do it? Well, the first thing you need to do is set up an account where you can buy and hold and sell your stocks.

2:09And that's called a brokerage account, brokerage. And a brokerage account, sometimes through your bank, let's say, if you have a Bank of America account, it's connected to Merrill Lynch, which is a brokerage. You could think about things like Schwab, Fidelity, E-Trade.

2:27There's some of the newer players like Robinhood and Webull. But those are all ways that you can open up brokerage accounts. And they'll usually make you fill out a bunch of paperwork, your social security number, et cetera, et cetera. And then you open that account.

2:40And then once you open the account, then you have to transfer funds to that. So you have to fund the account. Fund the account. And usually, you could transfer from your bank. There might be other ways of doing it. And then once you have funded your account, you are ready to actually go out and buy things.

3:02Now, when you buy things, you're going to buy them with a handle, or a name for it, in stock language, which is the ticker symbol, the ticker symbol. For example, Microsoft's ticker symbol, many people might know this, it is MSFT. And be very careful when you're looking at the ticker symbol.

3:25Sometimes you'll look up something, and there might be maybe some other company, instead of Microsoft, it's Micro Software or something; it has a slightly different ticker symbol, so make sure. There's actually been cases of, in fact, it happened more than once in history, it happens quite often, where a ticker symbol or a company with a similar name moves based on use of a company that has a similar ticker symbol or similar name.

3:48So people do make that mistake. So look it up. Do your research. Decide if you want to buy it. If you already own it, you could decide if you want to sell it. Now, to be clear, not every company in the world has ticker symbols. In order for you to be able to have access to it, it needs to be a public company.

4:06That means that its stock is being traded on the major exchanges, things like the NASDAQ or the New York Stock Exchange, or maybe on one of the international stock exchanges. There are a lot of companies, some of them very valuable, that only take private investment.

4:24So if you are an accredited investor, or if you sometimes are friends and family with people in those companies before they go public, you might be able to buy in. But most people are not going to buy in. So they have to wait for that initial public offering. You've probably heard the term IPO.

4:42That's the first time that the company is issuing stock on an exchange. And then once it issues that stock, it's raising money by doing that, but then that stock can trade hands between people on that exchange. And so that's what allows you to buy it. Now, the last thing I'll talk about in this video, there's a lot more to think about in how you value companies, the risk involved, and there is a lot of risk involved.

5:04So you should always be thinking about what you're doing, not put all your eggs in one basket. But once you decide to buy, you might see something like a limit order, limit order versus a market order. Now, a market order, you're going to see something called bid, bid and ask, when you look at any quote for a stock.

5:28They'll actually, the actual dollar they'll give you is the last trade that was shown on that exchange. But bid is what someone is willing, someone on the market is willing to pay for it, willing to pay. And the ask is what someone is willing to sell for, willing to sell for.

5:50And normally, there's a little bit of a spread between these two. The bid is a little bit lower than the ask. For a ticker symbol like Microsoft where it's changing hands a lot, it's a very, what's known as a liquid stock, these two things are going to be very close to each other.

6:07And especially if the markets are open, you're fine doing a market, you're probably fine doing a market order, and you'll get a price probably very close to the last trade that was at. And market orders, people like that because it tends to be fast. You're just like, you know what, whatever the market is, I'm just willing to meet the ask for that.

6:27Whatever they're asking for, I'll just pay that, and I immediately get my stock. Now, even if it's a very liquid stock like Microsoft, you might say, hey, you know what, ah, this thing is fluctuating a lot. Maybe it's trading at a certain value, but I wanna pay a little bit less, even then, and I don't care if I don't get all my stock right immediately, you might wanna do a limit order.

6:46That's saying, I'm willing to pay at most a certain amount. Let's say a stock is right now at, I don't know, $80. You might do a limit order for 79.50. Now, if the stock never trades below 79.50 or at 79.50, you're not gonna get any of your stock. But this would be maybe you're hoping that, okay, right now it's at 80.

7:06Let's say that this is the stock price over the course of the day or the week. So this is time. This is the price. And let's say that this is where it currently is. This is at 80. So, but if it does something like this, and maybe is your, this is the price that you're willing to buy it, well, then the brokerage will automatically try to buy you some stock as soon as it hits your limit order price.

7:33And you could do the same thing when you're selling. You could sell at market, in which you're just willing to sell at whatever someone's willing to pay, and that tends to be faster. And it tends to be okay for a very liquid stock. Or you could do a limit order where it's like, no, I'm not, I'm only going to sell it if it gets to some price or another.

7:51Now, the last thing I'll talk about is limit orders are really important to think about if you are buying or selling a less liquid stock, say a micro-cap company where the spread is high, there aren't a lot of people trading in it. Sometimes you might, some of the brokerages allow you to buy things after hours, where there's fewer people buying and selling.

8:11There it is much better to think about your limit order. But I will leave you there now. You know a good bit about the stocks already. And in future videos, we'll go even deeper.