Intro to investing: stocks, risk and diversification
Everyone at school is talking about a stock that "can't stop going up." Should you buy it? Before you can answer, you need to know what a stock actually is, why its price moves, and how investors protect themselves from the bad years. That's what this lesson is about. By the end, you'll know how to make a Buy, Sell or Wait decision the way Mintly practices decisions: with research and reasons, not hype.
Would you buy it?
A friend says a company's stock went up 40% this month and everyone's buying. What would you want to know before deciding? Write at least one question.
Saving vs. investing
In Lesson 4 your money sat in a savings account: safe, easy to reach, growing slowly. Investing means putting money into something that could grow faster, like part of a company, while accepting that it could also lose value. That trade-off is called risk. In general, a chance of higher reward comes with a higher chance of loss.
That's why investors use a simple rule: money you'll need soon, like your emergency fund or next month's bus pass, stays in savings. Only money you won't need for years is a candidate for investing, because it has time to recover from bad years.
What is a stock?
A small piece of ownership in a company. Each piece is called a share. If you own a share, you own a tiny slice of the company.
Companies sell shares to raise money to grow. After that, people buy and sell shares with each other on a stock exchange. Investors can make money from a stock in two ways:
- The price goes up. If you buy a share at $50 and later sell it at $60, your return is $10, or 20%.
- Dividends. Some companies pay part of their profits to shareholders, usually every few months.
And there's one way to lose: the price goes down. A share bought at $50 could be worth $30 a year later, or, if the company fails, close to nothing.
Why do prices move?
A stock's price is just what buyers are willing to pay right now. It moves when people change their minds about the company's future. Three things move it most:
- Earnings: how much profit the company makes. Companies report this every three months.
- Expectations: what investors think the company will earn later. A stock can fall even after good news if people expected even better news.
- News and hype: a new product, a lawsuit, a viral post. Hype can push a price far above what the company earns, and it can fade just as fast.
Diversification: don't bet it all on one company
No one, not even professionals, can reliably predict which single company will do well next year. So investors spread their money across many companies, industries and types of investments. This is called diversification. If one company has a terrible year, it's only a small part of what you own.
One easy way to diversify is a fund, which pools money from many people to buy many investments at once. An index fund holds every company in a list (an index), such as the 500 large US companies in the S&P 500, so one share of the fund gives you a small piece of all of them.
What happens when one company crashes?
You have $100 of practice money, split equally across some companies. One of them has a terrible year and falls 50%. Change how many companies you own and watch what happens to your $100.
Assumes the other companies stay flat. Diversification lowers the damage from one bad company; it can't stop the whole market from falling.
Making a Buy, Sell or Wait decision
Investors who own a stock decide whether to Buy more, Sell or Wait. In the Mintly simulation you practice the same thinking: you research a real company, ask Leaf questions, and choose Buy, Wait or Pass (pass means you decide not to buy). Then you get a Decision Score. The score isn't about whether the price went up, because nobody controls that. It's about how well you decided: your research, your evidence, your awareness of risk and your reasoning.
- Research both sides. Read at least one source that disagrees with you.
- Name your evidence. "Revenue grew a lot last year" is evidence; "everyone's buying it" is not.
- Say what could go wrong. And how much it would matter.
- Decide, then reflect. Wait is a real decision too. "I don't know enough yet" is often the smartest answer.