In the last lesson I mentioned how my father would always mention to me how “the market was up”. Knowing now that there thousands of companies traded in the equity markets you may wonder what my father meant by “the market”. Was it that on that day he saw more green, upward arrows on MSNBC than red, downward arrows? Was it that on that particular day his stocks were doing well and he wasn’t paying attention to the other stocks? He was most likely looking at stock market indices such as the DJIA, S&P 500, or Russell 2000. These indices (or indexes) are commonly used to describe the health of the overall stock market and as a result are closely monitored day in and day out.
You’ve heard a lot about it. You may have flipped past MSNBC and saw the green and red arrows and the acronyms and wondered “What does it mean?” and “Why do people care so much?” Before we go into what those arrows mean and why the talking heads on those networks continue to blab on let’s strip away all the opinion and discuss the facts concerning stocks. (You’ll notice I am not going to discuss much of the mechanics of how stocks are traded that is the subject of the next lesson).