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Mads Hansen School - Stock Market Survival Guide

Estimated Reading Time: 6 minutes

Conventional financial publications tend to be extensive, intricate, and lack engagement. Our mission is to revolutionize this narrative.

We strive to distill complex ideas into easily digestible formats. However, certain industry-specific elements such as abbreviations, terms, and jargon remain inherent.

To enhance comprehension of our newsletter content, here are key terms and concepts frequently employed:

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Exchange-Traded Fund (ETF): An ETF is a versatile investment vehicle that operates much like a stock, allowing investors to buy and sell it throughout market hours. In contrast to individual stocks representing ownership in a single company, an ETF typically encompasses a diversified portfolio of stocks or assets.

The significance lies in the appeal of ETFs for achieving easy diversification and gaining exposure to specific industries or assets. For instance, investors can consider the following ETFs:

  1. SPDR S&P 500 (NYSEARCA:VOO): This ETF mirrors the performance of 500 of the largest US companies.

  2. First Trust NASDAQ Cybersecurity (NASDAQ:CIBR): A sector-themed ETF investing in approximately 41 cybersecurity companies.

  3. United States Oil (NYSEARCA:USO): While direct investment in oil can be challenging for retail investors, this ETF replicates the returns tied to oil prices.

In essence, ETFs offer investors avenues to access investments that were previously cumbersome or intricate. In our newsletter, we explore various industries and frequently cite ETFs as practical examples for gaining exposure to those specific sectors.

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The S&P 500 Index: Representing a cross-section of 500 major US companies based on market capitalization, the S&P 500 Index serves as a performance indicator for the broader market.

Encompassing diverse sectors, including finance, information technology, and healthcare, this index functions as a comprehensive gauge, akin to a scoreboard reflecting the overall health of the US stock market.

The significance lies in the S&P 500's widespread use as a benchmark for evaluating other investment returns. Major market movements are often communicated through references like "The S&P 500 increased by X%," making it a central point of reference in financial discourse.

Over the decade leading up to 7. dec. 2023, the annualized return for companies within the S&P 500 was an impressive 15,19%.

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Nasdaq Composite Index: Commonly known as the "Nasdaq," this stock market index, similar to the S&P 500, monitors the performance of over 3,000 companies listed on the Nasdaq stock exchange. Notably, the Nasdaq index has a higher concentration of technology companies compared to the more sector-diverse S&P 500.

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Why does this matter? When discussions center on the tech sector's performance, financial publications frequently reference the Nasdaq index, exemplified by statements like "The Nasdaq increased by X%."

Initial Public Offering (IPO): The IPO is the process through which a company goes public on the stock market. Unlike private companies, which aren't available for public trading, investors can only buy shares in a company when it goes public. The IPO process, from filing to listing, opens opportunities for retail investors to engage with new companies.

Why does this matter? IPOs present an exciting avenue to access emerging companies. Our newsletter will spotlight the most compelling and relevant companies undergoing the IPO journey.

Net Income/Profit: Companies generate revenue from sales, deduct expenses (e.g., marketing, cost of goods, salaries), and the remainder is the net income or net profit.

Why does this matter? When discussing a company, we often provide its net income/profit, a crucial factor in assessing financial health. However, to gain meaningful insights, it's essential to compare net income across different periods for a holistic perspective.

Net Income/Profit Margin: This represents net income/profit as a percentage of sales, offering a vital measure of a company's health. A higher net margin indicates greater profitability.

Why does this matter? Net income margin is crucial for gauging a company's profitability and is commonly used for inter-company comparisons.

Price-to-Earnings (P/E) Ratio: In investment analysis, the P/E ratio compares a company's earnings per share to its stock price.

Why does this matter? The P/E ratio helps assess whether a company is undervalued or overvalued compared to others. A higher ratio may indicate a more expensive valuation, but it's essential to consider expected growth, as rapidly growing companies often have higher P/E ratios.

 

Other Key Information:

  • Abbreviations: $1m denotes $1 million, and $1b denotes $1 billion.

  • Ticker Format: When mentioning publicly traded companies, we use the format (NASDAQ:AMZN). "NASDAQ" indicates the stock exchange, and "AMZN" is the unique ticker for the company. Use this format when searching for stocks in your app.

If you have any questions feel free to reach out to me at info@madshansen.com

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