Back by popular demand, Tyrone Jackson breaks down the language and concepts of the stock market. 

Money Flow

Money flow refers to where the big money is. By “big money” Tyrone is referring to insurance companies, big banks, hedge funds, college endowments, who have hundreds of millions of dollars invested in the stock market. While the average individual investor buys about ten to one hundred shares of a certain stock, the big money institutions purchases ten to twenty million shares of that same stock. 

Penny Stocks

A penny stock is a stock that costs under $5 per share. The typical thought is, “If I get a thousand shares of the stock at $2, when it goes to $4 I’ll make a lot of money.” The problem with penny stocks is there is not a lot of money flow from the big institutions to these stocks. They are very vulnerable to corruption and the possibility for manipulation is too strong. 

Stocks that are above $50 per share tend to attract banks and insurance companies. If you have less than $5,000 to get started invested, you should put your money in the companies that have the highest probably of attracting big investors. We need the big money to push the stock price higher. The purchase of 20 million shares by a big institution can push the price of a stock up. 

Our job is to pick stocks that we like and that Wall Street also likes.

Risk

If you are in a penny stock you are in a higher risk category because we don’t know anything about the company and its earnings. If you are invested in a stock like Disney, whose revenues come from hotels, resorts, theme parks (real estate), broadcasting, feature films and merchandising, you are in a lower risk stock. Wall Street is wildly attracted to Disney stock and its price will continue to rise. DOW Jones stocks are generally lower risk. 

Allocation

Allocation refers to your money as if it were a pizza pie. What will we do with each slice? For The Wealthy Investor students, most of the slices are allocated to DOW stocks because they are lower risk. This stacks the deck in our favor in terms of long-term investments and risk management. 

If we wanted to add a little risk for potential reward, we can allocate some of those slices to stocks in the S&P 500 index. For example, Starbucks is not in the DOW but it is in the S&P 500. Wall Street still really likes Starbucks and the stock is great for selling covered calls. 

The advantage of being connected to The Wealthy Investor program is finding out what stocks money is flowing to, getting a financial education, and learning how to manage risk and allocation all at the same time. 

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