08- Actions: What They Are, How They Work and How to Obtain Value

Lesson 08 – The Best Free Finance Course in History

In this lesson, we'll talk about the best investment vehicle in existence: stocks. We'll see how they work and how you can achieve superior returns..

Course index:

Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control.
Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals.
Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time.
Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments.
How to protect your savings. Protect yourself from scams.
How to protect your money from the scams that abound today
Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work.
Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy.
Actions: What They Are and How They Work <<<<<<<<<<<<<
Explanation of stocks, types (common and preferred), and how to invest in them.
Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification.
Risk vs. Return on Investments
Concept of risk and how it affects investment choices.
Diversification and Creation of Basic Portfolios
Basic diversification principles to reduce risk in an investment portfolio.
What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices.
Introduction to Mutual Funds
An explanation of mutual funds and their benefits for beginners.
Financial education for the family.
Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments.
Growth Stocks vs. Value Stocks
Differences between these types of actions and when each is appropriate.
Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals.
Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns.
Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments.
Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation.
Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies.
Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance.
Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market.
Leverage Principles and its Risk
What it means to trade with leverage and the associated risks.
Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them.
What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market.
Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies.
Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification.
Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives.
Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.

Welcome to this new lesson on what stocks are. If you've never heard of this or it sounds complicated, don't worry. We'll learn together, step by step, in simple terms. Stocks are something many people use to grow their money, and today you'll understand what they are, how they work, and how you could use them too if you're interested. You don't need to know anything beforehand, because we're going to start from scratch and make it fun.

What are Shares?

Imagine a company as a big cake. A share is a small piece of that cake. When you buy a share, you become the owner of a small part of the company. It doesn't mean you have to work there or tell them what to do, just that you have a little piece that's yours.

For example, let's say there's a company that makes delicious ice cream called "Happy Ice Cream." If they divide their company into 100 pieces (i.e., 100 shares) and you buy 1, you own 1% of "Happy Ice Cream." If you buy 5 shares, you own 5%. It's that simple.

Shares are bought and sold in a special place called stock marketIt's like a market where people go to trade these little pieces of companies. Some buy them because they believe the company will grow and their shares will be worth more, and others sell them when they want to cash in.

What are Shares for?

Actions have two main purposes:

They help companies get moneyIf Happy Ice Cream wants to build a new factory to sell more ice cream, it needs money. So it sells shares. The people who buy them give money to the company, and in return, they receive those little pieces of ownership.
They give you a chance to win moneyIf the company does well, your shares may be worth more over time. Also, sometimes they give you a share of the profits, which is called dividendIt's like a little gift for owning one.

It's like a deal: the company wins because it has more money to work with, and you can win if things go well.

How do Shares work?

Let's see this with a simple example. Imagine that "Helados Felices" sells its shares for 10 pesos each. You decide to buy 10 shares, so you spend 100 pesos (10 shares x 10 pesos).

The price changesOn the stock market, the stock price doesn't stay still. If "Happy Ice Cream" does well and everyone wants their ice cream, the price could rise to 15 pesos per share. Now your 10 shares are worth 150 pesos (10 x 15). You earned 50 pesos just by waiting!
You can also go downIf the company does poorly, for example, if people don't like the ice cream, the price could drop to 7 pesos. So your 10 shares would be worth 70 pesos, and you'd lose 30. It's like a seesaw.
You decideYou can sell your stocks whenever you want and keep the money, or wait longer to see if they go up even more. It all depends on how you see things.

Something important: the price of a stock already includes what people expect from the company, such as its future dividends and profits. In other words, when you pay 10 pesos for a share, that price already takes into account what could happen next, as if it were a bet on the future.

Types of Shares: Common and Preferred

Not all stocks are created equal. There are two main types: ordinary and the preferredLet's look at the differences so you understand them better.

Ordinary shares

These are the most common. When you buy common stock, you own a small piece of the company and have certain rights:

VoteYou can have a say in the company's big decisions, like choosing leaders. It's like going to a meeting and saying, "I want this person to be the leader." But don't worry, you don't have to go in person; it's usually done online, or someone votes for you.
Profits when they go upIf the stock price goes up, you make money by selling it for more. But you don't always get dividends (that extra cash), depending on the company.

For example, if you own 10 shares of Happy Ice Cream common stock, you can vote and hope the price goes up. But if the company decides not to pay dividends, you don't get that little gift.

Acciones — Typical image of stock market environments. Nowadays, almost everything is done online.

Preferred Shares

These are a little different. When you buy preferred stock, you don't have as much voting power, but you get other benefits:

Safe dividendsPreferred shares usually give you fixed dividends, like a promise. If "Happy Ice Cream" makes money, preferred shareholders receive their share before ordinary shareholders. It's like being first in line for ice cream.
Less riskIf the company has problems and can't pay everyone, the preferred shareholders usually get paid first.

For example, if you own 10 preferred shares and "Helados Felices" promises a 1 peso dividend per share, you'll get 10 pesos even if you don't vote. But if the price doesn't rise much, you don't earn as much by selling them.

What is the easy difference?

Ordinary: More power to speak, but dividends aren't guaranteed. You earn more if the price goes up.
Preferred sharesLess power, but more secure dividends and priority if there are problems.

It's like choosing between being the boss of something (ordinary) or having a fixed salary (preferred). It depends on what you like best.

Dividends: What They Are and How They Work

Let's talk more about the dividends, because they're an important part of stocks. A dividend is a portion of the company's profits that it decides to give to its shareholders. Not all companies do this, but many do.

Imagine that "Helados Felices" earns 1,000 pesos selling ice cream. The bosses say, "We're going to distribute 200 pesos among the shareholders." If there are 100 shares and you own 10, you get a share. Do the math: 200 pesos ÷ 100 shares = 2 pesos per share. Since you own 10, they give you 20 pesos. That's extra money just for owning shares!

But there's something you should know: dividends "cut the coupon." This means that when you're paid a dividend, the share price typically drops slightly because that money is no longer in the company. For example, if a share is worth 10 pesos and you receive a 2 peso dividend, the share could later be worth 8 pesos. Your gain is relative, because what you earn in dividends you lose in the price. In the end, what matters is how much everything is worth together (shares + dividends).

Furthermore, as we mentioned before, the stock price already takes into account future dividends and expected earnings. It's not something that's "added" unexpectedly; it's already included when you buy.

When they give them: It's not every day. It's usually every 3 months, 6 months, or 1 year, depending on the company.
There is not alwaysIf the company isn't earning much or wants to use the money for growth, it can say, "No dividends this year." With preferred stocks, you're more likely to get paid, but with common stocks, you sometimes have to wait.

Dividends are like a reward for trusting the company, but they're not the only way to earn, because the price also goes up or down.

Warren Buffett today. He's the greatest stock investor in history. Interestingly, his company never paid dividends.

How to Invest in Stocks?

If you're interested in trying it, you don't need to be an expert or have tons of money. Here's how to get started, step by step, with easy examples.

Step 1: Learn a Little

Before you invest, understand how everything works. Read things like this article, watch short videos, or ask someone who knows. You don't need to know everything, just the basics so you don't feel lost.

Step 2: Find an ALyC

To buy shares, you need help from a ALyC (Clearing and Settlement Agent). This is a company or individual who knows how the stock market works and handles the paperwork for you. Many operate online, so you can open an account from your cell phone or computer.

For example, you search for "ALyC Argentina" online, choose one you like (as if choosing an app), and register. They'll ask for some information, such as your name and how much you want to invest.

Step 3: Put in the money

You open an account with ALyC and deposit the amount you want to use. It doesn't have to be much; you can start with 100 pesos or 1,000, whatever you feel comfortable with. That money goes into a special account that ALyC uses to purchase shares for you.

Step 4: Choose your Actions

Here comes the fun part: deciding which company you want to invest in. There are different approaches to choosing. Some use the fundamental analysis, which is to look at how the company is doing (whether it makes money, whether it sells a lot). Others use the technical analysis, which involves looking at price graphs to predict whether they're going up or down. Don't worry about this for now; we'll explain it in detail in future lessons. For now, you can choose a company you know, like "Helados Felices" if you like their ice cream.

The ALyC shows you a list of prices, and you say, "I want 10 shares of this one." If "Helados Felices" shares are worth 10 pesos, you can buy 10 with 100 pesos.

Step 5: Wait and Decide

Once you have your shares, you can wait for them to rise in price or for dividends. If they rise to 15 pesos, your 10 shares are worth 150, and you'll earn 50 if you sell them. If you receive a 1 peso dividend per share, you'll receive an extra 10 pesos, but remember that the price drops slightly due to the coupon cut. You decide whether to sell, wait longer, or buy more.

Important Things to Remember

Before I finish, I want to leave you with some key ideas so you don't forget:

Not everything always goes up: Sometimes stocks go down, and that's okay. That's normal in this game.
Use money you don't need: Don't put in rent or food money, just what you can risk.
Ask if you don't understand: If something is not clear to you, ask your ALyC or someone who knows for help.
Patience is the keyYou're not going to get rich overnight. Stocks grow slowly if you choose wisely.

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An Example

Let's imagine you want to invest in "Jugos Alegres," a delicious juice company. Its shares are priced at 20 pesos each.

You buy 10 shares: You spend 200 pesos (10 x 20).
The price goes up: After a few months, it rises to 30 pesos. Your 10 shares are worth 300 pesos. You sell them and make 100 pesos.
They give you dividends: "Jugos Alegres" gives you 2 pesos per share. With your 10 shares, you get 20 pesos, but the price drops to 28 pesos due to the coupon cut. Still, your total of 300 pesos is now 280 + 20 = 300.
Total: You earned 100 pesos in total if you sell after the dividend.

But if the price drops to 15 pesos, your shares would be worth 150, and you'd lose 50 if you sold. It all depends on how the company is doing.

Why Test with Actions?

Stocks are a way to make your money grow. Instead of keeping it in a box where it does nothing, you put it to work. If you choose well and are patient, you can save for big things, like a trip or a new bike. It's not magic or pure luck, but something you learn over time.

Some Extra Tips:

Start small: Try it with 100 or 200 pesos to see what it's like.
Look at well-known companiesIf you know that “Helados Felices” sells a lot, it may be a good option.
Don't worryIf you're not sure, wait and learn more before investing.
DiversifyDon't invest everything in one company. Buy stock in several, like ice cream and juice, in case one fails.

In summary

I hope this explanation has helped you understand what stocks are, how they work, and how you can use them. Common stocks give you more leverage but less dividend security; preferred stocks give you a fixed amount but less say. Dividends are a nice extra, although they cut the coupon, and the profit is relative. The stock price already takes into account everything that might come, and to invest, all you need is an AYC and a little bit of desire.

Don't feel rushed. Take your time to think about whether you like this idea. The important thing is to know that it's not impossible or just for geniuses. Anyone can learn and try, and you've already taken a big step by reading this. If you have any questions, read again or ask me anything. In future lessons, we'll talk more about fundamental and technical analysis for choosing stocks, so stay tuned! Thanks for reading this far, and I hope it helps you get started if you want!

Next course date

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Questions for you to reflect on

Why should I learn to invest in stocks?

If my stock goes down, do I have to sell it?

What are the benefits of investing in a company I know?

A brief overview of The Pocket Investor

The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.

The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.

In addition, in the course The Pocket InvestorWe combine all this knowledge to offer you a complete experience: theory, practice, and strategies that truly work in the Argentine and global context. All this with a clear, friendly, and accessible approach, so you can achieve financial independence.

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