The Stock Market: Mechanisms and Investment Strategies

Primary Market: Companies raise capital through Initial Public Offerings (IPOs). Example: Airbnb’s 2020 IPO raised $3.5 billion.
Secondary Market: Investors trade existing shares on exchanges (NYSE, NASDAQ) or over-the-counter (OTC) markets.
Key Indices:
- S&P 500: Tracks 500 large-cap U.S. companies, representing ~80% of market capitalization.
- NASDAQ Composite: Tech-heavy index (e.g., Apple, Amazon).
- MSCI World: Global equity benchmark covering 23 developed markets.

Value Investing: Buying undervalued stocks with low P/E ratios or high dividend yields. Example: Warren Buffett’s focus on intrinsic value.
Growth Investing: Targeting companies with high revenue/earnings growth (e.g., Tesla, NVIDIA), often with higher P/E ratios.
Dividend Investing: Prioritizing stocks with consistent dividends (e.g., Coca-Cola, Procter & Gamble). Reinvesting dividends via DRIPs (Dividend Reinvestment Plans) compounds returns.
Index Investing: Passive strategy using ETFs (e.g., SPDR S&P 500 ETF) to mirror indices. Lower fees and consistent returns (e.g., 90% of active managers underperform the S&P 500 over 15 years).

Fundamental Analysis: Evaluating financial statements (income statement, balance sheet) and ratios (P/E, ROE). Example: Analyzing Apple’s $394B revenue (2023) and 28% net margin.
Technical Analysis: Using charts (candlesticks, moving averages) to predict price trends. Example: Identifying a “golden cross” (50-day > 200-day moving average) as a bullish signal.
Sentiment Analysis: Gauging market psychology via news, social media, or the VIX (Volatility Index).

Systemic Risks: Market crashes (e.g., 2008 crisis, 2020 COVID-19 sell-off).
Idiosyncratic Risks: Company-specific issues (e.g., Boeing’s 737 Max crisis).
Behavioral Biases:
- Herd Mentality: Chasing trends (e.g., 2021 meme stocks like GameStop).
- Overconfidence: Overtrading, leading to underperformance (studies show active traders lose 2-6% annually vs. benchmarks).