Pizza stocks are having a moment right now. Domino's stock, for instance, has had a banner decade with shares surging nearly a thousand percent from a mere $3 a share to over $215 a share. Propped up by fresh marketing and improved recipes, the American pizza brand has made a real comeback.
But, what does that mean? Everyone talks about the stock market, but hoes does it work, and how does it impact your average investor?
Overall, the U.S. stock market has seen strong gains, especially since the 2016 presidential election. In fact, Wall Street is on average 3,600 points higher since President Trump's election, which has been dubbed the "Trump bump." And on Wednesday, thanks to Apple stock's sky-high rise, the Dow reached a record 22,000 for the first time.
Still unsure how you'll be able to engage in investment-related cocktail conversation? We have the answers to your financial questions.
What makes a stock particularly popular, such as how Domino's or Apple is at this time?
Cady North, financial advisor and founder of North Financial Advisors, said it has to do with a company's ability to convince shareholders that they will be profitable now as well as in the future. "Analysts can crunch the numbers and look at stock prices, and look at the future profitability, the future cash flows, discount that back to the present day and determine how good or bad the stock is doing," she said. The company's health will be reflected in the stock price.
She explained over a slice that companies have many tools they can use to improve profitability, which can in turn have an impact on the stock market or the stock price. In the case of Domino's, North said a few tactics the company could take include, "Selling more pizza, or they can also do it by cutting costs, meaning they get more dollar profit for every pizza that they do sell."
What are some of the things you should look for in a stock before you invest in it?
"It shouldn't be a short term view," North said. " You don't want to look at what they're gonna maybe do in the next six months or the next nine months, but you want to look at over the course of maybe the next five years."
To evaluate the stock, you need to know things like what the company makes, what products they offer, how well those products are doing and where they sell them. And it should go without saying, North added, but "it's probably not a good idea to buy a stock just because you like the product."
When is a good time to invest?
Most people first become investors when they open up a retirement account through work and begin putting money in it. "The moment you do that, you're going to own a small piece of a bunch of different companies by investing in mutual funds," North explained.
As for when you should invest in stocks outside of a retirement plan, North says it's important to have a few things in place, such as: creating a general budget, as well as basic emergency fund and then bringing down any high-interest debt (like credit card debt).
Once those things are in place, you'll have a better idea of how much free cash flows you have month to month that you'd potentially be able to put towards investing.
A mutual fund, by the way, is a company that comes together and buys a collection of other stocks that meet a certain strategy they have. "Many mutual funds are what we call indexing companies, where they'll just buy the entire S&P 500," North explained. "Maybe not as exciting because you won't see the large ups and downs in the market from day to day as you would if you owned maybe a handful of stocks, but exciting in the fact that over the long term you're less likely to have a lot of the major declines."
How do market fluctuations impact the average investor?
North argues "day to day fluctuations matter a lot less than longer term trends."
Why is that? Well, in any given day, the market could experience a rises and declines. "A bad day meaning, stocks started at a lower price than they ended. They ended at a higher price, that means everyone who owned stocks that day made a little bit of money," North said.
The "big misconception" about investing
When people go to buy and sell stock, they don't actually know from whom they're buying because the market is anonymous. You could be buying from an individual or an institutional investor.
And the second misconception is that buying stock directly impacts a company. In fact, "for you to pick up and buy Domino's stock really benefits whoever you're buying the stock from" as well as the bank or custodian that makes the transaction possible.
The other thing to keep in mind is that you won't make bank until you cash in your shares. "The truth is," North explained, "you don't make money until you actually sell your stock."
Separately, it's important not to pour all your money into one company. In fact, North advises owning stock in many companies. "I would say even hundreds," she argues.
The reason for that is so that you can diversify your risk (kind of like putting your eggs in more than one basket). One way to do that is by using mutual funds, which allow you to own a broad swath of different companies.
But, why invest in the first place?
Investing is a solid way to build wealth because the stock market tends to out-earn things like real estate, inflation and even government bonds. "It's a great way to have significant capital growth over the long haul," North said.
And now, you can invest online with a low-cost brokerage, where you can buy small amounts of stock with just a few hundred dollars.
"We all want to make money," she said, adding that with the right timeline and investment strategy in place, you can "arrive at the right kind of investments for your needs."
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