Topic · Core Finance & Asset Classes
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89 articles · 13 checkpoints · 51 deeper reads · 25 reference notes
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A share is not a claim on a company's buildings. It is a bundle of three things, a residual claim on whatever is left after everyone else is paid, a cap on your losses, and a vote, and the residual part is what makes equity behave the way it does.
An American Depositary Receipt is a US-listed claim on foreign shares held in a vault abroad, when the two prices drift apart, a depositary bank's conversion mechanism lets an arbitrageur create or cancel ADRs to pull them back together.
A stock's price drops by roughly the dividend on the ex-dividend date, a mechanical, predictable event that traders try to exploit around, and that options markets price in well before it happens.
The default way to build an index is to weight each stock by its market value, but that isn't the only choice, equal weighting and other alternative schemes trade off diversification, turnover and performance in very different ways.
An ETF tracks what it holds because a handful of large firms can always swap a basket of the underlying shares for brand-new ETF shares, or hand ETF shares back and take the basket. That swap is an arbitrage valve, and it is the whole reason an ETF is not just another closed-end fund.
An index is a rule, not a fact. The choice of which companies count and how much each one counts decides what "the market did today" means, and three sensible rules applied to the same four stocks can give three different answers.
Before an IPO prices, the underwriters spend a week collecting orders at different prices from investors, that order book, and who gets how much stock out of it, is how the offer price actually gets set.
A poorly-run public company is a standing invitation for someone else to buy it and replace management, takeover defences are the legal tools boards use to slow that down or price it up.
Every short sale starts with borrowing the stock first, a large, mostly invisible rental market where the fee is set by how scarce the shares are to borrow, not by anything happening in the price chart.
The extra return investors expect for holding stocks instead of a safe government bill. It is the single most important number in finance and nobody knows what it is, because it has to be estimated from data so noisy that a century of history still leaves the answer blurry.
When a stock is added to a major index like the S&P 500, trillions of dollars of passive money are forced to buy it on a fixed date, a predictable, price-insensitive demand shock that tends to push the price up before the buying even happens.
US stock trades used to settle two business days after the trade; since May 2024 they settle in one, a change that sounds administrative but compresses the entire window brokers, custodians and foreign investors have to move cash and shares.
Small-cap stocks often look cheap and undercovered on paper, but their thin trading volume means the cost of actually buying and later selling a meaningful position can quietly erase the edge.
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