How to Read a Stock Ticker
I remember my hands shaking the first time I placed a trade. I have no idea what I’m doing, I thought to myself. Beginning my journey in investing seemed like such a steep learning curve, and the amount of information online actually made it more confusing at times. Many sources can either oversimplify or over complicate the process. It was that initial fear that stopped me from dipping my toes into investing until many years later. This article is meant to dispel at least a small part of that fear, and to equip you to read and understand the basics of a stock ticker. Don’t worry, it’s not rocket science, but you’ll still need to focus.
Let’s take ITOT, my favorite ETF, as an example:
You can easily Google search all of your favorite companies’ tickers online to see their respective charts, which will look like the above (but specific to the company that you’re searching, of course). Ultimately, these charts give you some perspective on the performance of a company’s stock. However, it’s important to note that stock performance is not the same as a company’s business performance. More on this later. Onto the definitions!
Symbol: First, every stock (or ETF) will have its own ticker or symbol. In this case, it is ITOT, which is the iShares S&P 1500 Index Fund. This fund basically represents the entire US stock market. Abbreviations are great - Who has time to always write out full names anyway?
Price: The price indicates the current market value of a given security. If you’re looking at this chart during typical market hours between 9AM and 4PM EST, then this will constantly be changing. The price of ITOT at the market close of Dec 21, 2018 was $54.62. Sigh.
Change: In the above example, ITOT dropped $1.17 from its previous close of $55.79 (or 2.10%). These changes can swing wildly on some days, given different market events and news.
Date range: This could differ by website or app, but most stock symbols will have charts for 1 day, 1 week, 1 month, year-to-date, 1 yr, and Max. They represent exactly what you’d expect - stock performance over those specified time periods.
Take a look at the 1-yr example of ITOT. You can see that we are indeed in a “bear” (ie down) market.
However, the “Max” time frame shows that it’s clearly a great investment over the long haul. I’m sure most people at this point would still say that the US market is the strongest and most reliable.
These charts can reveal underlying stories and narratives of a company. Take a look at Facebook over the past year:
Facebook has definitely encountered some tough times over the past year. News broke that Facebook had leaked a millions of users’ data to the political consulting firm, Cambridge Analytica. Then, FB reported slowing growth for the first time, sending its stock tumbling once more. The only reprieve came in early January with the announcement of a more aggressive stock repurchase program, but the slight gains have been crushed once more by overall market pessimism following the Fed’s rate hike and uncompromising attitude toward rate hikes moving forward. As mentioned before, stock performance is not the same thing as business performance. From a standpoint of earnings per share, FB has actually been doing incredibly well. Through all of its precipitous drop from almost $220/share down to $125/share, FB has posted great numbers in terms of earnings. However, investors are spooked by the slowing growth, as well as the uncovering of many different scandals involving the liberal sharing of user data.
Finally, you can also see some patterns from the charts, such as when a company has seasonality or is part of a cyclical industry. For example, Amazon has seasons where people are more aggressively shopping (holidays) than other times. Below is an example of AVGO (Broadcom):
Certainly not all of its ups and downs are a result of seasonality, but it does play a significant role.
Open: The price of the stock at market open (9AM EST).
High: The highest price of a stock during a particular trading day. Again, because prices always fluctuate, the “High” simply records the highest price reached during market hours.
Low: The lowest price of a stock during a particular trading day.
Mkt cap: Market cap refers to the total market value of a particular fund or company. Basically multiply stock price by all outstanding shares. Taking the FB example again, its current market cap sits at $359B (quite the drop from its all-time high market cap of $601B+).
P/E ratio: Price to earnings ratio. Per Investopedia, “In essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings.” Taking the above example, ITOT has a P/E of 6.93 vs. FB’s P/E of 18.81.
Now, you might be wondering, “Why wouldn’t I just invest in companies with the lowest P/E ratio? Wouldn’t that mean I would be getting the most for my investment?”
While there is some logic to that, it’s not quite so straightforward. Stock prices represent expected future value, whereas earnings represent the most recent earnings per share. Basically stock prices are more forward-looking, whereas earnings are more backward-looking. When Amazon stock first hit the market, it had negative earnings per share (ie it was losing money). However, as we all know now, the company would later become a behemoth and peaked at >$2,000 / share. It still has a relatively high P/E, because most people still believe in the future growth of the company. In general, high P/E usually represents stocks of companies that are expected to continue growing impressively, whereas low P/E tend to represent very mature companies like CVS or Bank of America. P/E gives you a snapshot, but certainly should not be the only thing you look at when considering an investment.
Div yield: Percentage “interest” received from holding a stock. Investing in high-growth companies can certainly pay off - as prices climb higher, you eventually sell and take the difference as profit. But what happens if the company is already mature? They keep you onboard by issuing quarterly or monthly dividends. You can find out more about dividend investing here. I’m personally a fan of dividend investing, because it is an easy way to build up passive income with little to no maintenance.
Prev close: The closing price from the previous trading day.
52-wk high: Highest price over the past year.
52-wk low: Lowest price over the past year.
Volume: Number of shares changing hands. A higher volume generally means higher liquidity (ie you can buy a share, because there’s definitely someone also selling or vice versa).
Expense ratio: Management fees - This only applies to mutual funds and ETFs. In essence, it is the fee you pay in order for someone else to manage the fund. When I buy ITOT, it is mostly a computer automatically rebalancing a $14B portfolio to make sure its portfolio continues to represent the S&P 1500 index. Having a company provide this service is not free, hence the expense ratio. But with ITOT, it’s only 0.03%, which amounts to very little, even over the long haul.
And there you have it! Take some time to familiarize yourself with the charts and terms, and be better prepared if and when you decide to take the plunge into the world of investing.