As I mentioned in our previous post here, finance isn’t actually that difficult (unless you’re trying to work in the field).
With easier access to investment mediums and assets, why not take advantage of the opportunity to start investing?
To get you started, here’s another short list of finance terms made simple!
If you have 10 chickens and each chicken is worth $5, then you are worth $50. This is basically what market cap means.
The official definition for it is “the total dollar market value of a company’s outstanding shares of stock”.
The simple definition is the share price multiplied by the number of shares the company has issued, which tells you how much a company is worth.
What you can now do with this information is…really not much, actually. Much of what you can gather from the market cap of a company is just a rough gauge of the risk and returns you can get from investing in them.
Basically, if I only have 10 chickens, then I want to expand my business and have more chickens to make more money but if i already have 10 million chickens then I might not want to expand even further.
A term that gets tossed around quite a bit, the float is the amount of shares that are actually available for trading.
So why is the float not equal to the total outstanding shares?
Because some shares are held privately by insiders, employees, or other long-term shareholders who are basically holding their shares for good!
Now imagine that each of those chickens lay an egg and you sell each egg for 50 cents, your dividend from owning those chickens would be $5.
A company usually pays out dividends to its shareholders for holding its stock.While usually paid from the annual profits of the company, a company might choose to pay dividends from its reserves to make it seem like they are in good health when they are not!
Another simple term to explain, the dividend yield is the dividend divided by the share price.
Back to our chicken example, the dividend yield would be the price of an egg divided by the price of one chicken (50 cents divided by $5), which gives us…10%.
Now one thing to note about all this is that if the price of one chicken changes, then so does the dividend yield.
When considering investing in a company for dividends, it is wise to consider more factors than simply making a decision based on the dividend yield!
While the origins of the name did come from poker, blue-chip stocks actually refer to companies that are established and possess less risk.
They tend to be global companies that have been around for many years and can weather most storms.
If your chicken farm with 10 chickens were to get hit by a bout of bird flu, it might decimate your entire farm. A chicken farm of 10 million chickens, on the other hand, would be in a better position to survive a bout of bird flu.
Get started on Kalpha!
If you want any tips or just advice on how to get started with investing like how to open a CDP account or what not, speak to some of our Sharers in our Finance category for some guidance!
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