(Notes from Oct.30)
Financial markets allow a flow of capital from players that have a demand for money and those that supply money. Investors supply capital to companies (or government, etc.). In between these two are financial institutions facilitating this flow of money, e.g. banks, pension funds, stock markets, etc… Some skills needed in order to be successful in this environment are:
- Mathematics, in order to quantify the characteristics of an investment and to deal with uncertainty;
- Analytics, to make sense of a problem (formulate, investigate, ‘coming up’ with the problem that is to be solved);
- Communication and ‘people skills’, understanding how to manage relationships;
Stockholders have cashflow rights in proportion to holdings of the stock as well as voting rights in the company. Communication is important because it is important to know the future cashflows of the companies (this influences the stock value: stocks become more expensive as future expectations rise).
Bloomberg is a media company delivering information and content to investors (or traders, brokers, fund managers, etc.). They provide details about stock indices. An example for such an index could be the TSX – Toronto Stock Exchange – an index whose value indicates the price of a value weighted portfolio (weights according to market cap(italization) – defined as the total market value of shares issued by a corporation). A positive change indicates that people have revised upwards their expectations for future cashflows from companies (in this case Canadian companies).
If looking at one specific index, one can see the market cap of sectors of the (Canadian) economy. Example for TSX: Financials are a large chunk of the stock economy, oil and gas as well as basic materials (gold, mineral, etc.) are the second largest. 249 members are currently listed on the TSX.
Remember to set up a Bloomberg Account in the Financial Analysis Centre.
