Purpose: Finance is portrayed as a complicated area of study. Hollywood shows finance as a fast paced industry where people are doing deals everyday and billions of dollars are moving between accounts and investors minute by minute. This is half true. Your average investor probably has a full time job in a different field and is investing to retire, buy a house or pay off school loans. The purpose of this page is to help the average person understand finance. It is not meant to be investment advice in any way. There are plenty of other websites like investopedia.com and they do an excellent job of describing finance subjects. This website is "just the facts" and nothing more.

Basic Definitions: 

Stocks: you can think of stocks as pieces of ownership in a publicly traded company                                                  Bonds: fixed income product that is essentially a loan to a company, government division, or other entity

Market: a place in real life or on line where people go to buy and sell items

Stock Market: a place where you can buy or sell stocks, bonds, exchange traded funds (ETFs), mutual funds and other financial products. The most famous stock market is the New York Stock Exchange (NYSE). There are others such as the Nasdaq and London Stock Exchange. 

Portfolio: a collection of stocks, bonds, and other products owned by a person company or other entity

You may want to know what is the purpose of investing is. In basic terms people invest to make more money. If you buy a share of Coca Cola (KO) you are hoping that the stock increases in value and that Coca Cola continue to pays a dividend. 

Dividend: money a company send you periodically for owning its shares. 

Risk: anything that has an unintended consequence. There are industry risk, market risk, government risk, natural disaster risk, etc. 

How do you balance risk and reward? Diversification and doing your homework. What is diversification? It is making multiple investments in different companies in different industries. The classic business school example is Person A invests all of their money into 1 company. Unfortunately, that company catches fire and burns to the ground. Ignoring insurance payouts, you've lost your entire investment. Person B invests in 4 different companies. The chances of all 4 companies burning to the ground  or going out of business are very small. Diversification is great to a point. In my opinion you can be too diversified. An example would be investing into 100 companies. It is hard to keep an eye on all 100 companies. Information drives markets and stock prices. Trying to keep up with press releases and annual reports for all 100 companies would be an almost impossible task. AI could help but you would still need to check to make sure the AI output was correct. 

Another business school example is investing in companies that are negatively correlated. Negatively correlated means they move in different directions. An example is airline stocks and oil and gas stocks. When oil prices increase, jet fuel becomes more expensive which negatively effects the profits for airline companies. In this case airline stocks decrease in value. The opposite is also true. When oil prices fall jet fuel becomes cheaper so airline stocks increase in value. 

You can look at correlations of stock prices in excel. It is easy to download the information into a spreadsheet then use the correlation function. If you are building a portfolio in excel this can help you evaluate what is correlated to what.