Quartz 4

Stocks

3 min read

Stocks

An investment that represents a share, or partial ownership of a company.

  • It is a stake in living, breathable business in which you share the rewards and the risks alike.
  • As part-owner, you are entitled to a share of that company’s profits and assets.
  • While money kept in a savings account gets eaten away by inflation, invested money is working for you 24/7
  • Terminology
    • share: a unit of stock (you are a shareholder)
    • IPO (Initial Public Offering): when a company sells shares to the public for the first time
  • Long vs Short term
    • In the short term, prices are determined by the opinion of the masses. → changes easily because the news of the day influences what the world thinks about certain stocks
    • In the long term, a company’s true value is reflected in its share price. → That’s why time is a critical ingredient of successful investing.
  • Concept
    • Companies issue (sell) stocks for many things (pay debt, launching new products, etc). The stocks are then trade on various exchanges around the world (the largest being the New York Exchange (NYSE)) as the value rises and falls.
    • Stocks have a historical average annual return of 10% (which easily beats the 0.5% in your banks account)
      • 10% doesn’t sound like a lot, but the interest compounds to produce incredible returns!!
      • Imagine someone told you you could turn 100,000 with no work whatsoever
    • Unlike a bank account, your original outlay can multiply many times over if you invest in the right companies.

We can earn money through stocks by

Buy low and sell high

  1. Selling: The business price grows and the stock price increases
  2. Dividends

Stock Classifications & Styles

  • By Ownership Rights
    • Common stock
      • Represents ownership in a corporation and entitles the shareholder to certain rights and benefits
      • The normal type of stock that we usually talk about
      • voting rights + dividend
    • Preferred stock
      • Hybrid security (mix of stock and bond features).
      • No voting rights, but receives dividends before common shareholders.
      • Higher claim on assets during liquidation than common stock.
  • By Company Quality & Size
    • Based on Market capitalization (시가총액):
      • Large-Cap (대형주), Mid-Cap (중형주), Small-Cap (소형주).
    • Blue Chip Stocks (우량주)
      • Stocks of nationally recognized, financially sound companies (e.g., Samsung, Coca-Cola).
      • High stability and reliable dividends.
    • Penny Stocks (동전주)
      • Low-priced, small-cap stocks (often under $1 or 1,000 KRW).
      • High risk, high volatility.
  • By Investment Strategy/Valuation
    • Growth Stock (성장주)
      • Companies expected to grow sales/earnings faster than the market average.
        • Stocks expected to grow faster than and outperform their competitors to deliver big returns
      • Often pay low or no dividends (reinvests profit).
    • Value Stock (가치주)
      • Companies trading below their intrinsic value (undervalued).
      • Often mature companies with steady dividends.
      • Related: Undervalued Blue Chip (저평가 우량주)
  • By Economic Sensitivity (경기 민감도에 따른 분류)
    • Cyclical Stock (경기민감주)
      • Prices move with the economy (e.g., Auto, Travel, Semiconductor, Restaurants).
      • Booms when economy is good, drops when economy is bad.
    • Non-cyclical / Defensive Stock (경기방어주)
      • Stable regardless of economic conditions (e.g., Utilities, Food, Healthcare).
      • People buy toothpaste and medicine even during a recession.

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