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Investing 101: How the Stock Market Works

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Investing 101 How the Stock Market Works

Afraid to ask simple questions about the stock market? You’re in the right place. We’ll help you out.

Everyone talks about investing in the stock market – newspapers, TV personalities, businessmen, Jim from work. And there’s a lot of opinions. Everything from ‘it’s too risky to invest!’ to ‘invest everything you have right now!’

You feel like that one kid in class who just didn’t get it, but the rest of the class did. So you never raised your hand and asked.

You’ve heard of words like ‘investing’ and ‘stock market’, but what do they actually mean? And how does the stock market work?

This article will break down these words in simple terms and explain how the stock market works.

What Does Investing Mean?

Investing is giving your money to something now in order to receive more money later. The goal is to ‘make your money work for you,’ so to speak.

When people want more money, they often work harder rather than working smarter. They work more hours at work or take on a second job. But all that work comes with a price.

They’re tired, burnt out, and miss time with their family.

This is where investing your money comes in. Ideally, once you reach middle age you have accumulated money that you can invest. This way your money works for you.

But here’s where we ask some big questions: where should you invest your money? What are the risks of investing?

These are questions we constantly ask when considering investing. There are certainly wise and unwise investments.

This is why you should thoroughly research before investing. You should also consider your circumstances and personality. Some people can afford to take riskier investments while others cannot.

There are a lot of ways to invest your money – a savings account, bonds, etc.
But what about investing in Stock?

What is Stock?

Stocks are also called ‘shares,’ which I think is an easier word to understand.

Sometimes one person owns a company, but other times multiple people own a single company.

How does a bunch of people own a single company? Who calls the shots? Who makes the most money?

Here’s what happens: the people divide the company ownership into pieces. This is what shares are, they’re pieces of ownership of a company.

The people who ‘hold’ these shares are called ‘Shareholders.’

Let’s say a company is divided into 100 shares, and Larry has 25 shares. That means Larry owns 25% of the company, and will receive 25% of the money that is given to shareholders.

Pretty cool huh?

But there’s a downside: if the company tanks, guess who loses out big time? Our friend Larry the shareholder.

Not every company has shares, but quite a few do: Apple, Facebook, Amazon, Johnson & Johnson, and more.

Now that you know what stock is, let’s explain what the stock market is.

What is the Stock Market?

First, let’s just look at the word ‘market.’ A market is a group of people who are exchanging goods. It’s possible to do this at a physical location or online.

At a physical marketplace, there are sellers at tents and buyers walking around. They’re exchanging products, monies, and services.

Now let’s combine the two: the stock market is a group of people who are buying and selling shares of companies.

Again, most of this is happening online, not in a physical location. There are over-the-counter exchanges, but most transactions happen electronically.

There are many ways to sell shares, but the most common way is through an auction process:

• A seller announces, “Hey, I own 50 shares of Google, and I want to sell them!”
• Buyer ‘A’ bids $500 a piece.
• Buyer ‘B’ bids $7000 a piece.
• The seller sells the shares to Buyer ‘B’.

The goal is to buy shares of a company that will make profits in the future. Or if you have shares of a company that you think is about to tank, sell the shares.

This why people research stocks and watch the news. They want to know when to buy and sell shares.

Sometimes ‘Stock Market’ Refers to Market Indexes

Time to introduce you to another vocabulary word – market index (the plural form can be ‘indexes’ or ‘indices’).

A market index collects information about stocks from several companies. It keeps track of the costs of stocks.

In the United States, the two most famous market indexes are:

The Dow Jones Industrial Average (sometimes called the ‘Dow Jones’ or the ‘Dow’ or ‘DJIA’)
The S&P 500 (Standard and Poor’s or simply ‘S&P’)

These two aren’t buying and selling stocks; they are analyzing stocks.

The Dow Jones analyzes the stock of 30 large, publicly-owned companies. The S&P analyzes the stock of 500 large, publicly-owned companies.

Then they publicly display this information.

Although these two indexes don’t see the entire marketplace, they see a good portion of it. They still see how the top companies are performing.

With these indexes, we can judge the overall stock market. Because if the top 500 companies are doing well, chances are the entire American economy is doing well.

And the opposite is true. If the top 500 companies are doing poorly, chances are the entire American economy is doing poorly.

When we want to know how the American economy is doing, we check the Dow Jones or the S&P 500.

When the news says ‘Stock Market’ it’s usually referring the Dow Jones or S&P 500.

Sometimes people say, ‘The stock market is looking good’ or ‘The stock market went down this week.’

They’re basing that information off of these two market indexes – the Dow Jones and S&P 500.

There you have it! A basic knowledge of what people are talking about when it comes to investing in the stock market.

Keep studying up, and soon you’ll be an expert.

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7 Blockbuster Drugs Expected To Be Launched In 2020

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Pills falling out of bottle. (Image via Shutterstock)
By Shanthi Rexaline

Biotech stocks had a fairly decent run in 2019, thanks to record deal flow, several path-breaking innovation in drug research & development and the positive broader market sentiment. New molecular entity approvals totaled 48 in 2019, less than the 59 NME approvals in 2018.

The new year is expected to be risk fraught, as lawmakers are expected to step up their rhetoric on drug pricing. Even as the outlook for drug companies remains not-so-promising, some key drug approvals could still impart some momentum to the sector.

The FDA could expedite the review of some drugs, Evaluate Pharma said, citing some approvals in 2019 that came about well ahead of the scheduled PDUFA date such as Vertex Pharmaceuticals Incorporated’s (NASDAQ: VRTX) Trikafta. Trikafta, a treatment option for cystic fibrosis, was approved five months ahead of the PDUFA date.

The following are the drugs with blockbuster potential that could make their way from lab to the shelves, according to Evaluate Pharma.

Trastuzumab deruxtecan

  • Sponsor: Daiichi Sankyo Company, Limited (OTC: DSNKY) & AstraZeneca plc (NYSE: AZN)
  • Indication: Her2 positive breast cancer
  • Status: BLA accepted with priority review status in October and the PDUFA date has been fixed for second quarter of 2020

Palforzia

  • Sponsor: Aimmune Therapeutics Inc (NASDAQ: AIMT)
  • Indication: Peanut allergy
  • Status: PDUFA date of January; A FDA panel, which met in September, voted 7 to 2 that the efficacy data and 8 to 1 that the safety data in conjunction with additional safeguards are adequate to support the use of Palforzia

Ozanimod

  • Sponsor: Bristol-Myers Squibb Co (NYSE: BMY) (came into the company’s stable through its Celgene buy)
  • Indication: relapsing form of multiple sclerosis
  • Status: The FDA accepted for review the BLA in June and has set a PDUFA date of March 25

Inclisiran

  • Sponsor: Novartis AG (NYSE: NVS)(came into the company’s stable through its Medicines Company buy)
  • Indication: LDL-cholesterol lowering therapy
  • Status: NDA submitted in December for use in secondary prevention patients with atherosclerotic cardiovascular disease and familial hypercholesterolemia

Roxadustat

  • Sponsor: AstraZeneca/FibroGen Inc (NASDAQ: FGEN)
  • Indication: treating anemia associated with chronic kidney disease
  • Status: FibroGen, AstraZeneca’s partner in developing roxadustat, said it has submitted the NDA to the FDA in late December

Sacituzumab Govitecan

  • Sponsor: Immunomedics, Inc. (NASDAQ: IMMU)
  • Indication: treating metastatic triple-negative breast cancer
  • Status: After an initial snub, the company resubmitted the BLA and the FDA accepted the application for review Dec. 26, 2019, fixing a PDUFA action date of June 2

Filgotinib

  • Sponsor: Gilead Sciences, Inc. (NASDAQ: GILD) and GALAPAGOS NV/S ADR (NASDAQ: GLPG)
  • Indication: rheumatoid arthritis
  • Status: The NDA was submitted Dec. 16, 2019, with the review period expected to be expedited due to a priority review voucher submitted along with the application

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Trade Chief Robert Lighthizer Says USMCA is ‘Gold Standard for Digital Trade’

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According to US trade representative Robert Lighthizer, the United States-Mexico-Canada Agreement (USMCA) will increase GDP and is a “big win for America,” as reported by Fox Business. Lighthizer said we have what is “really the absolute gold standard on digital trade and financial services.”

USMCA is expected by the Trump administration to bring back or generate 80,000 jobs that are related to the auto industry and “create as much as $30 billion of new investment in the sector.” The problems of US dairy farmers will also be reduced by the trade deal as it will provide new access to American wheat, poultry, eggs, and many others.

Fox Business reported that Lighthizer said USMCA will raise GDP by 1.2 percentage points and create over 550,000 new jobs when fully implemented. “We have the first trade agreement in a long, long time that has the support of almost every business group, almost every agriculture group, labor groups, Democrats and Republicans, so we’re really excited about where we are,” Lighthizer said.

In a December 15 report by CBS News, Lighthizer called the White House’s act of submitting a deal with House Democrats on the USMCA as “the most momentous day in trade history ever.” His statement also referred to the announcement of the first phase of a trade agreement with China.

“It was extremely momentous and indicative of where we’re going, what this president has accomplished,” he said.

The House is expected to vote on USMCA on Thursday, but the day could still change.

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401 K

Senator Rand Paul: Pay Off Your Student Loans With Your 401k

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Senator Rand Paul says you should pay for your student loans with your 401k. Paul’s new legislative proposal, the HELPER Act (Higher Education Loan Payment and Enhanced Retirement), would allow benefits like tax-free money for college, tax-free employer-sponsored plans, no cap on student loan interest deduction, and many others. Essentially, it would allow students and parents to withdraw retirement funds to settle expenses for college.

The act “would allow Americans to take out up to $5,250 from a 401(k) or IRA tax- and penalty-free each year to pay for college or make monthly student loan payments,” explained CNBC.

According to Forbes, “Paul seeks to reshape the way people save and pay for higher education, driven through tax and savings incentives.” He notes that “the current student loan interest rates can be as high as 7% for graduate students and parent borrowers.” Student loan refinancing rates, on the other hand, have dropped to below 2%.

Paul’s critics will likely note objections such as removing money from a retirement account for any purpose that is not related to retirement may not be a wise financial move; many students cannot both save for retirement and pay off student loans; and the annual amount may not be enough to help borrowers make a meaningful impact.

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