This episode, Mak & G look at how stock markets work, the difference between private and public companies, and the type of account you need to start investing in stocks.
Mak & G are ready to start investing, but first, they need to open up an investment account and choose a stock to invest in.
So what are the different stock markets and how do they all work?
This “Money With Mak and G” podcast episode, Mak & G answer these questions, and find out how under 18’s can open up investment accounts, and which companies you can invest in…
“There are different stock markets depending on which company or stock we want to buy.” – G
“It might be the right time to start your investment plan and engage your kids.” – Ben Jones
01:10 – Which companies you can invest in.
01:40 – The difference between a private company and a public company.
02:40 – What an IPO (Initial Public Offering) means.
03:50 – The history of companies deceiving investors.
04:34 – How Uber’s IPO turned out.
05:07 – The type of account you need to invest in stocks.
06:14 – What a stock market is.
07:00 – How different markets work.
07:58 – What the NASDAQ is and the companies that are on it.
09:45 – How old you have to be to open a brokerage account.
10:09 – What a brokerage or investment account is.
Connect with Ben Jones:
#1 Where are higher-income families more likely to do most of their Christmas shopping, compared to lower-income families?
#2 What are lower-income families more likely to use to pay for Christmas shopping?
#3 How do 29% of Americans plan to pay off their holiday bills?
#4 How long did we calculate a typical $1500 credit card bill would take to pay off at average interest rates if you only paid the minimum amount?
#5 Prices today are around 50% higher than 20 years ago because of what?
A) 44 months
C) Ten years
MAK: G, you know we just learned a ton about investing, and some great stuff about stocks.
GRANT: Yeah, I’m super excited to get started. But, where do you buy stock? Do you have any ideas?
MAK: No, I’m not really sure how that works. And, I don’t think every large company sells stock either.
GRANT: Why do you say that?
MAK: Well, dad said something about how Uber can now be bought, but I guess last year you couldn’t.
GRANT: Ok, that’s a bit strange, why don’t we see if Dad can fill in some gaps.
DAD: What’s going on? I’m learning some new riffs on my guitar.
MAK: Grant and I were talking a little about how you can buy a stock.
GRANT: Yeah dad. You helped clear up some questions on investing in stocks, but how do you get started?
DAD: Do you know which companies you can invest in?
GRANT: Any big company!
DAD: I like the way you’re thinking. You’re right, big companies are the ones who can afford to sell their stock. But, not all companies want to sell part of their company.
MAK: Didn’t you say that companies need money, so they either borrow it or sell part of the company?
DAD: I did, but not all companies need money. Some do really well on their own, and they earn enough money to grow. Wouldn’t that be great?
GRANT: Absolutely. So are there big companies that don’t sell stock?
DAD: Yep. That’s called a private company. Mak, you’d probably love the Mars company. It’s a private company.
MAK: Does it sell chocolate?
DAD: You betcha!! Mars Bars, M&Ms, Snickers, Twix, and others.
MAK: That’s awesome!! Do they sell Milky Way bars too?
DAD: Yep. Really cool, huh? And, they also sell other things, like Uncle “Ben’s” Rice. Had to get that in there. And, we could buy pet food for Oreos. And, I love Orbit gum, which they sell.
GRANT: And they don’t have stock to sell?
DAD: No. They are the third biggest private company in the United States. They sell over $35 billion of products and have over 100,000 employees.
MAK: Wow. So, if that’s a company that doesn’t sell stock, and it’s called private, what do you call a company with stock?
DAD: That’s called a public company. You have to do what’s called an IPO, or initial public offering.
GRANT: Ok, not sure I follow the word “public”. Private is easy, you want to keep a secret, you keep it private, and so a private company doesn’t share ownership, like you don’t share a secret.
DAD: That’s right. An IPO is the first time you can buy the stock. Initial means at the beginning. My initials are “BJ”, because the letter “B” is at the beginning of my first name and “J” is the beginning of my last name.
MAK: Ok, so it’s the first time you can buy the stock?
DAD: Yep, it’s the first time the company “offers” you the opportunity to buy its stock. We’ve gone to a public library lots of times before. Do you know what “public” means?
GRANT: Mom said anyone can go to a public library. It’s a library open to everyone.
DAD: Exactly. So, a public company can be bought by anyone who wants to buy its stock.
MAK: That’s cool. So, the IPO is the first time the stock can be bought by anyone?
DAD: Yep. As we spoke about last time, it costs a lot of money, and since the government wants to protect everyone who buys it, there are lots of rules.
GRANT: What do you have to be protected against?
DAD: A long time ago, companies lied about how well their companies were doing. They kept saying they were making lots of money, so what do you think happened to their stock price?
MAK: The expectations kept going up?
DAD: Absolutely. And, it happened with a LOT of companies. When everyone found out the companies lied, the investors tried to sell their stock. Lots of supply, no demand. What do you think would happen if nobody wanted to buy it?
GRANT: The price dropped like a rock because there was no demand.
DAD: Yep. And, it was one of the most important things that started the Great Depression. That’s a story for another time.
MAK: So, have there been any IPOs recently that I might know about?
DAD: Grant, do you remember Uber? They had an IPO this year.
GRANT: Really? That’s the taxi service company, right? How much money did they get from selling their stock?
DAD: Around $8 billion dollars. And, yes, it is that taxi service.
MAK: That’s crazy. 8 BILLION. So, can we buy part of Uber?
DAD: Yep, first you need an account that holds your stock. We spoke about a bank account before, right?
GRANT: Yep, Denelle helped us open our bank accounts. But that was for money.
MAK: So, do you have to get a different account to hold your stock?
DAD: Yep. It’s called a brokerage account. Sometimes an investment account.
GRANT: That first one is a weird name. Did you say someone “broke their age?” What??
DAD: It is weird, but it is called “brokerage”. Just as you put money into a bank account, you put money into a brokerage or investment account. A person, named a “broker” then helps you buy your stock.
MAK: Seriously dad, a “joker” helps you buy stock?
DAD: Ok, that was worth a laugh. No, it’s called a “broker” who buys your stock. I have friends who are brokers. Some are very funny, and I guess I would call them jokers, for sure.
GRANT: But, I thought we could buy stock online, like anything else.
DAD: That’s true, but we aren’t allowed to buy the stock directly from the stock market. You can think about it if you buy food from a supermarket online.
MAK: Is that where mom orders it, and they deliver it to the front porch?
DAD: Exactly. We buy it from the stock market, and the broker delivers it to your account.
GRANT: Cool. So, what’s a stock market?
MAK: Is it like a supermarket, that sells fruits, vegetables, cereal, cheese and all kinds of food? But for stock?
DAD: Yes, it is. A market is where you have someone who wants to buy something.
GRANT: Like us!!
DAD: Yep. And then you have someone who wants to sell something.
MAK: And, that’s the store, right? Like Whole Foods, Kroger, or Publix?
DAD: Those are well known supermarkets for sure.
GRANT: So, there is a buyer, which is us and a seller. If it’s an IPO, would that be the company?
DAD: Yep, and after the first time, it could be your teacher, the guy down the street or someone on the other side of the world.
GRANT: That’s strange. And the broker helps the seller and us, the buyer, find each other.
DAD: Yep, perfect G.
MAK: So, can you explain the market again?
DAD: Absolutely. For example, we go to different markets to buy different stuff. Can you name a store or market that sells clothes? Another that sells electronics? And, another that sells guitars?
MAK: I know the guitar one, that’s Guitar Center, where we bought my Sweet Taylor!!
GRANT: We bought the Wii U at Best Buy, so that’s an electronic store.
MAK: And, we bought some of our school clothes at Kohl’s.
DAD: Bingo. You buy different things at different stores, and we can call them markets. Clothing Market, SuperMarket and an Electronics market. They bring the buyer and seller together.
GRANT: So, are there different stock markets, depending on which company, or stock we want to buy?
DAD: Yep. The biggest is the New York Stock Exchange. And, Grant I know you’d be interested in the second largest, it’s called the NASDAQ.
GRANT: I do love getting “Cash Back”. Is that what you said?
DAD: No, I said NASDAQ, not cash back. It means National Association of Securities Dealers Automated Quotations. Wow, that’s way too long to say each time, so they use the short version, NASDAQ.
GRANT: So, why would I like it? Does this have something to do with video games?
DAD: Well, the New York Stock Exchange was started in 1817 and the NASDAQ started in 1971. That’s over a 150-year difference. Can you guess the companies on the New York Stock Exchange compared to the NASDAQ?
MAK: I’d have to say older companies, right? Like Ford Motor Company, they’ve been making cars for a long time. And, Mickey Mouse has been around since 1928, so Disney, right? And, Coca Cola was 1892?
DAD: Perfect. Grant, can you guess what’s on the NASDAQ?
GRANT: Must be lots of tech companies, like Apple. Aunt Lori said Tesla uses lots of computers. So, they have to be newer companies, right?
DAD: Yep, both of those are definitely on the NASDAQ.
GRANT: What about Google? And, would Amazon and Netflix be on there too?
DAD: Yep, all three are on the NASDAQ. Google does a lot on the internet, Netflix uses computers to send movies over the internet, and Amazon uses computers that help businesses run better.
MAK: That’s crazy dad. NASDAQ sounds like its a lot of technology, from all the pieces that go into computers as well as the companies that make software that tells a computer what to do.
GRANT: Like video games!! That’s totally software. And, there are also companies that use computers to do new and interesting things, like Apple and Netflix.
DAD: I couldn’t be happier to hear you nail it. Normally you have to be 18 to open your own brokerage account. But, let’s get you an account, so we can get you going.
MAK: That would be great. I want to start investing now. I really want to buy some stuff in my own account.
GRANT: Don’t forget me!!
DAD: I won’t G-man!!
MAK/GRANT: Thanks Dad!!!
DAD: You’re welcome!
Ben’s 2 Cents
When investing in stock, you’ve got to have an account that allows you to buy stock. This is your brokerage or investment account. These are your TD Ameritrade, Schwab, Merill Lynch and others. You have to be 18, but a parent can open a custodial account for those under 18. This can be very helpful to engage kids, who can watch their stocks go up and down, and begin to ask why things have changed. Sometimes there isn’t a clear reason.
When you have an account, you have to know which stocks you can buy. Private companies don’t allow you to buy stocks, as they are privately owned. Public companies have stock anyone can buy after they have their Initial Public Offering or IPO. This sale of stock helps the company fund future opportunities among other things.
Stock markets are like any other market. There is a person who wants to buy and another person who wants to sell. A broker helps both to get to an agreed upon price and has access to the various markets. The New York Stock Exchange is the largest market in the world. You can buy what are seen as older companies, as it started over 150 years before the NASDAQ. The NASDAQ is generally seen as filled with Tech companies, because it’s much younger. Many of the younger companies decided to go with NASDAQ, for many reasons including cost.
We’ve made a ton of progress from learning basics on stocks and bonds, markets and more. It might be the right time to start your investment plan and engage your kids.
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