US Stock Investing for Beginners EP2: What is the US Market & How to Start?

American stocks, which is the world's largest stock market - the American stock market.

History of US stocks

The development of the American stock market can be traced back to 1792, when 24 stockbrokers signed the Mulberry Tree Agreement under a willow tree on Wall Street, New York, and a charter was drawn up on March 8, 1817, changing its name to the “New York Stock Exchange Commission”, which was renamed again in 1863. Called the “New York Stock Exchange (NYSE)”. At the time, NYSE's trading was mainly concentrated in government bonds and bank stocks. In the 19th century, with the development of American industrialization and railroad construction, the stock market also gradually became the primary means of financing capital for various enterprises. In 1934, the U.S. Securities and Exchange Commission (SEC) began regulating the U.S. stock market, further fostering the development of the stock market and making NYSE one of the largest stock exchanges in the world. At the same time, with the rise of emerging industries such as electricity, steel, oil and other, the US stock market entered a period of brilliance, known as the “Golden Age”. With the advancement of technology, new exchanges began to rise, such as Nasdaq, founded in 1971, to become the first electronic exchange, primarily trading technology stocks and growth stocks.

Introduction of the three major US stock indices

Dow Jones Industrial Average

The Dow Jones Industrial Index, one of the earliest U.S. stock market indexes, was created in the late 19th century. It consists of 30 of the most influential companies in the United States. Currently, the well-known McDonald's, Apple, Nike, and others are listed on the Dow Jones Industrial Index. The Dow Jones Industrial Index is calculated by summing up the stock prices of these 30 companies and then dividing them by a specific number. The 30 constituent stocks are also subject to a special filter change every few years. Although screening criteria are not publicly available, many are generally based on continued growth and market attention as a reference base.

Nasdaq Composite Index

The Nasdaq index is an index of all common stocks listed on NASDAQ, including technology stocks, biotech stocks, financial stocks, industrial stocks, and more. Therefore, the Nasdaq index is considered an index of stocks representing high-tech and growth companies. The Nasdaq index currently lists thousands of companies, each weighted based on its market capitalization-weighted average, indicating that companies with larger market capitalizations have a greater impact on the index.

S&P 500 Index

The purpose of the S&P 500 Index is to measure the performance of the stocks of the top 500 listed companies in the US stock market. These companies come from a wide range of industries, including but not limited to technology, finance, energy, healthcare, and more. Stocks in the S&P 500 index are selected by S&P's stock rating committee, which represent the vast majority of the market capitalization of the entire U.S. stock market, so its constituent stocks are relatively stable and only a handful of stocks are exchanged each year. S&P 500 is one of the most important indicators of the U.S. stock market and one of the most representative stock indices in the world. It is widely used as a benchmark for portfolios, as well as an assessment of the overall performance of the stock market. Because the S&P 500 index contains a significant number of industries and companies, it is more representative of the performance of a single stock or industry.

Introduction to US Equity Stocks

Here is a brief overview of the two largest equity securities companies in Taiwan:

Apple

Apple is the world's highest-earning company, with a market capitalization of more than $2.5 trillion as of March 2023, ranking first in global market capitalization and far ahead of second-place Microsoft by $5 billion. Apple's financial performance has also been very solid, with continued growth in revenue and profits over the past few years, and Apple has also actively repurchased shares to improve earnings per share. In the two or three years that have been hit by the pandemic, US equity stocks have seen significant returns, with Apple alone falling far below other blue-chip stocks, and in fundamental terms, Apple's physique is quite good. While Apple has a solid position in the smartphone market, it still needs to strengthen product innovation to expand its business reach and market share. After Samsung, Xiaomi and others are catching up, Apple must be aware of the crisis in order to continue to dominate the market.

Tesla

Tesla is one of the world's largest electric car makers, whose CEO is the world's first top celebrity, Elon Musk. As of March 2023, the company had a market capitalization of more than $6 billion, ranking eighth in the world by market capitalization, but still more than fourfold gap with first-place Apple as Tesla says their mission is to drive the transformation of global energy and achieve a cleaner and more sustainable future. The company's products and services include electric cars, solar and energy storage systems, and more. In addition, Tesla is actively developing autonomous driving technology to achieve a safer, more convenient and efficient way of transportation. Tesla is also very focused on disruptive innovation. Tesla's electric cars, for example, not only feature more efficient battery technology, but also intelligent vehicle systems, including autopilot and voice assistants, to help make driving more comfortable and convenient while driving. This is also one of the reasons Tesla has gained a foothold in the global automotive market in recent years.。 All in all, Tesla has grown very fast over the past few years, and the company is also actively investing in R&D and expanding production capacity, but the large amount of reinvestment and the development of new technologies has caused the company's balance sheet to expand.

How to buy US stocks in Taiwan?

After reading the basic introduction to US stocks above, you may ask, how do I buy and hold US stocks in Taiwan? The following gives you two channels: one is “multiple delegation” and the other is “overseas broker”. What is the difference? Please continue to look at it.

Multiple Delegation

To explain it in white paper, entrust domestic securities to place orders, domestic brokers entrust US brokers to place orders for you. While the fees are expensive (maybe $15-$50 at a time) and there are fewer benchmarks to choose from, the benefit is that buying US stocks without changing money or opening an overseas account is very convenient for novice investors.

Overseas Brokers

The second way is to apply for a U.S. brokerage account. Simply fill out the form information online to complete the account opening successfully. Common US securities dealers include InteractiveBrokers, TD Ameritrade, eToro, and more. Not only do you have very low transaction fees (sometimes even zero), a wide range of investment instruments and a wide range of derivative financial products to choose from, but it is also a good option for slightly advanced investors to buy directly from a US broker account.

epilogue

The above is a basic introduction to US stocks. For Taiwanese to invest in US stocks, investors need to have basic foreign language skills to read market information, and there are certain thresholds in addition to time difference issues. But U.S. stocks have no limit on gains and losses, and there is more room for profit to be imagined than Japanese stocks.