Stock Vocab 2.0
A business formed to manufacture or supply products or services for profit. Most companies are very small and have only one location like the little restaurant, dry cleaner, flower shop, or nail salon at the local street corner. Other companies have 10,000+ locations or sell their products and services globally. These may be companies you see every day like NABISCO, which is owned by a company named Mondelez International (ticker symbol MDLZ that makes Oreos) or MCDONALDS MCD.
A person who has a creative or unique vision for a product and services, and then creates and launches a business. The entrepreneur typically assumes the risk and rewards for a business venture.
A company owned and run by one individual who receives its profits or bears its losses. A proprietorship is not separate from its owner, who is liable for the company debts.
A company owned and managed by two or more people who share its profits or losses. A partnership is not separate from its owners, who are liable for the company’s debts.
Some entrepreneurs, sole proprietors, and partnerships decide to incorporate. This means that they establish a separate legal entity. The main reasons to incorporate are (1) if someone decides to sue the company, they would be suing the corporation and not the individual owners (2) it is easier to raise money to grow the business and (3) for tax reasons. The corporation issues shares of ownership (also called stock) to show who owns what percentage of the corporation. Most corporations don’t sell shares to the public. You can’t buy shares of a private company in the stock market. Here are some examples of what are known as privately held companies such as: CARGILL, which makes agricultural products, KOCH INDUSTRIES, which is in many businesses, such as transportation fuels, building and consumer products, and fertilizers, among others., IN AND OUT BURGER, which is a fast food chain, mostly in California, AND MARS, which makes Mars Chocolate bars and other candies.
PRIVATELY HELD COMPANY
You can’t buy shares of a private company in the stock market. Here are some examples of what are known as privately held companies such as: CARGILL, which makes agricultural products, KOCH INDUSTRIES, which is in many businesses, such as transportation fuels, building and consumer products, and fertilizers, among others., IN AND OUT BURGER, which is a fast food chain, mostly in California, AND MARS, which makes Mars Chocolate bars and other candies.
Larger companies that want to grow quickly often find it easier to sell some of their shares to the public to raise money. The stock of a public company is owned and traded by individual and institutional investors. The stock may also be held by company founders, employees, and sometimes venture capitalists, which are people who invest in new businesses that are just getting started. MCDONALDS Ticker symbol: MCD, VERIZON Ticker Symbol: VZ, Ticker symbol MICROSOFT (MSFT) are all examples of public companies that make products that you may use.
IPO or INITIAL PUBLIC OFFERING
IPO is a term heard a lot on Wall Street and in the news. When a company decides it needs to raise more money and wants to sell it shares to the public, then it files for an IPO.
Social media companies like Facebook and Twitter “go public.” While most investors can’t actually buy the shares at the initial offer price, they can buy them once they hit the exchanges and that is often an exciting and volatile day for the new stock price as the average investor finally gets a chance to own some of their favorite companies like Facebook and Twitter!
Once a company goes public, then the shares of that stock trade on one of the major U.S. stock exchanges (The New York Stock Exchange, the American Stock Exchange, and NASDAQ). The stock exchange is like a flea market where buyers and sellers come together and the buyers try to get an item for as low a price as possible and the sellers try to sell an item for as high as possible.
The stock broker is the person who actually makes the trade for you. In the old days, you would call your broker with your order who would then call his trader on the floor of the NYSE who would then place your order. Today, you can use Etrade.com, Scottrade.com and other online brokerage platforms to make trades.
We will use HowTheMarketWorks.com acts just like an Etrade account, with real stocks and real prices, just pretend executions.
A sector is a group of companies that are engaged in similar businesses. For example, McDonald’s and Burger King are in the restaurant sector. General Motors, Ford and Toyota are examples of companies in the automotive (car) sector. Citibank, Bank of America, and Chase are examples of companies in the banking sector.
A person who gives money to any of the above in return for a share of the company. For example, if you and three friends pool your money to make and sell cupcakes at school, you are all investors.