What Is A Stock?

what is a stock

What is a stock? To truly master Wall Street you’re going to need to study a lot and it’s good to go back to the basics every now and then, hence why I encourage you to read my free basic stock trading guide here and also watch videos, like the one below which we have also transcribed for my valued deaf Trading Challenge students:

Download the key points of this post as PDF.

So, everybody always asks me, “What is a stock? What’s the stock market?” And, to answer them, I like to think of one of my favorite things in the world, pie. I love pecan pie, I love pumpkin pie, I love blueberry pie, apple pie, peach pie, cherry pie, rhubarb pie, coconut cream pie. I love pies. And now I’m thinking about pies. All right. I’m thinking about pies. When you buy a stock, you are investing in a slice of some company. One company represents one pie. And let’s say you buy 1000 shares and the company has 1 million shares.  You’re taking a very small slice of that company. You believe in that company. You believe in that pie. I love the pie analogy.

But, you have to think about how long you want to hold on to your slice of the company. If you buy a stock, guess what? There’s long-term investing, where you say, “Okay. This is going to be a great company over several months, over several years, over several decades.” That is the most popular strategy in the stock market. You buy a small slice of a company and you hold it, thinking that it’s gonna get bigger and be better over time. For me, I don’t think that is very good. You know, for me, pies get stale. I like pie when it’s fresh baked. So, I just want to hold onto my slice for a very short amount of time. And then I eat it.

So, I usually hold onto a stock for, I don’t know, a few minutes, a few hours a few days,a few weeks, max because, again, pies get stale, companies get stale and, in this world, in this economy, you know, everything is changing so fast. You don’t know what technology is gonna be popular in five or 10 years. So, for me, when I see a stock, I want to trade it as opposed to invest in it. I want to use that slice of pie and I want to just ride it as much as I can. So, for me, in the stock market and for my top Millionaire Challenge students, we invest in these stocks, we trade these stocks very quickly because… Let’s say we think that it’s a good company and maybe they just had good news, you know, companies have news all the time, whether they report earnings or they have some licensing deal where they license their technology to a bigger company or maybe they acquire another company. There’s all different kinds of news.

But for me, I like buying these stocks and trading these stocks when there’s news, when there’s some kind of catalyst, because I’m simply using the stock for a very short period of time. I want to buy it or short sell it, which is betting against it, which is a whole other thing that’s gonna take too long to explain here, but I want to trade this stock in order to make money on it. And whether I try to make $1000 or $2000, my average gain over the past two decades is roughly $2000 per trade. So, I’m not investing for the long-term. I’m not holding on to these stocks for years. I’m not thinking that this stock is gonna be the next Microsoft. This is a mistake that a lot of people make. They get married to their stocks.

For me, I want to trade it and I want to use it to grow my account. So, I say aim for singles, take singles all the time as opposed to going for home runs, if you like baseball analogies. Stocks go up and down. And I just want to trade them when they fit predictable patterns. And, when they fit those predictable patterns, I want to ride it and I want to take the meat of the move. So, my goal is to usually make $1000 or $2000 on a trade, then I’m gone. That’s it. So, for me, the stock market is very useful at creating wealth. And I’ve done that, turning a few thousand into nearly 5 million. And now, several of my Millionaire Challenge students have taken a few thousand and turned it into several million, all through trading stocks. They do it trading one stock at one time, maybe 2, not investing in seven stocks or 20 stocks or investing in mutual funds where you’re diversifying because you don’t know which company is really gonna make it.

Instead, I like to focus on stocks that move up and down very quickly. And guess what? Sometimes I’m wrong. I cut my losses on that stock. That’s it. The stock market for me is kinda like researched gambling, okay? It’s very, very simple. I’m either going to use the stock to grow my account or if I’m wrong, I will take a small loss. And, ideally, my gains are bigger than my losses. That’s how my account grows over time. But, if you ask me what a stock is, I will tell you it’s something that you can trade to get richer. It’s something that you can utilize, if you study the past, because the patterns repeat and you can use that stock, you can use that company, you can use the company’s news to try to get a little richer. You are not getting married to the stock. You should not be thinking that this technology is gonna make it.

I’ve invested in companies in the past, before I had my rules, where I thought the technology was gonna be amazing. And guess what? The technology succeeds and the stock doesn’t. So, it’s not always a linear relationship where the technology and the stock don’t always have to both boom together. Sometimes the technology can make it and the stock doesn’t go up. Sometimes the technology bombs and yet the stock is getting hyped up and the stock really spikes a lot. So, the stock market is not like an exact science either. This confuses a lot of people. You want it to be like math and arithmetic where 9 plus 7 always equals 16. Okay. I can learn math and the answer is the same for me. It’s the same for you. It’s the same for everybody.

The stock market is a very difficult creature to deal with. And this is why 90% of traders lose money. 70% of all investors fail to beat the S&P 500 every year. The S&P 500 is an index that is the 500 largest companies in the U.S. So, you have to understand that this is more of an art than a science. And that’s why I’m always saying study the past, study patterns, see what’s worked in the past so that you can really start to study the stock market in the right way, rather than thinking about getting rich is just in hot picks or investing for the long-term. Utilize the stock market well and become my next Millionaire Challenge student. Go click “Apply Now” here. I’ll teach you the art.