Last month, I explained what a stock is, giving us the essential concepts to explore the equity market in more detail. We said that the stock market is the place where shares of companies can be traded among different investors, but how exactly does it work? And how can an individual access it? When a company issues shares, they become tradable on specific markets known as stock exchanges. Almost every country has one or more exchanges, and you’ve likely heard of some of the biggest names: the New York Stock Exchange, the NASDAQ, the London Stock Exchange, or the Singapore Stock Exchange. The scale of a company typically determines where its stock will be traded: small and medium-sized businesses usually have their shares listed only on their home country’s exchange, while large multinational...

In my previous post, I mentioned that my main motivation for starting this blog is to understand concepts through writing. Being that I’ve been interested in the world of finance for some time now, I’m always eager to explore increasingly more challenging and complex topics. Despite that, I think that revisiting from time to time the fundamentals is extremely important, as a good understanding of them is absolutely necessary to be able to grasp later, and more complex, topics. I’ve decided to create a series of articles focusing exactly on those fundamentals. But, where to start? I will first introduce equity investments, by giving mine definition of what a stock is. A stock is a security that represent the ownership of a fraction of a company. When you hold a company’s stock, you...

I started this blog for a variety of reasons, and one of the most important ones is to consolidate ideas and financial concepts. Today, I’m diving into one of these concepts: the process of economic research. While this process is foundational in economics, it extends across all social sciences and, surprisingly, it consists of just a few straightforward steps: Developing an effective research question Surveying existing literature on the topic Analysing the issue using economic theory Testing the analysis Interpreting results and drawing conclusions Sharing the findings To many of you, these steps might sound obvious, but putting basic concepts into practice is extremely useful. This is what today’s article is all about: creating a good habit by implementing the economic research process to...

If you ask a random retail investor about what normal stocks market returns are, you will often get this answer: “normal market returns are generally around 10% a year” or “if you invest in the stock market now, you can expect to gain 10% a year on average”. I think there are significant issues with these statements that, although may seem innocent, will cost you dearly if used as a foundation for your financial plans. Having said that, two questions might come to mind: why do we have the myth that the stock market averages returns of 10% a year? And, if 10% is not a good average, what is the true stock market’s expected return? The first question is fairly easy to answer; when people talk about the stock market, they usually only refer to the American one, often considering just one index:...