08/28/2025
It started as a fun experiment where I had one intent: make the stock market actually make sense. For the past three months I have been breaking down how the stock market works with these whiteboards!
Every finance term is IN THE NAME +
1. What is the stock market? The stock market is a market place where we buy and sell stocks SECOND HAND.
2. How do stocks actually make you money? A stock is just a piece of a company that you are invested in, that's why it's called investing. The company's have expenses and revenue, when they bring in more revenue than it costs to operate... they distribute their profits to you in the form of a dividend or reinvest them back into the company. The price fluctuates based on market expectations...
3. What do I do as a first time investor? You have to have a cushion, like an emergency fund, and you need to pay off your debt. Your stepping onto a roller coaster, which means you need to have your safety gear and accept the volatility you need the volatility to make your money grow.
4. What is the difference between a mutual fund and an ETF? They are like a group gift, a fund is "funded" by a lot of people, so you get access to more with less. These existed before fractional shares did. A mutual fund can be passive or active and trades once a day an exchange traded fund trades on the exchange like a stock but mutual fund characteristics, An index fund is a type of fund... so it can be a mutual fund or an ETF,
5. How to find high quality dividend stocks?
Brokerage firms have screeners that will help you filter through this information, just because a company has a high dividend does not mean it is of high quality. Look for a growing dividend, and free cash flow greater than the annual dividend (so you know the company can pay it)
6. How do I find stock ideas or ETFs to invest in? I like to use a top down approach, which means you understand the big picture first, what is happening in the economy and the business cycle, what are the headwinds and what are the tailwinds? Then what sectors will thrive in that environment? Finally what companies fit into that sector?
7. What are order types? There are your standard market and limit orders. Market means what ever the best price is that the market has for me now. And limit means I will only buy or sell at this price.
8. What is the 10-year Treasury? This is a note issued by the US treasury aka the government, the 10-year is considered the risk free rate and goes into a lot of models that analysts use to determine price. It's also tied to mortgages.
9. What is the yield curve? It is all of the US treasury securities with different maturities. We put their yields and maturities on a line chart and get the curve. The curve moves based on supply and demand like everything else and can be an indicator of the markets expectations of growth, inflation, and sovereign health.
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