The African American Center at the University of Connecticut held a workshop for advising students on financial decisions—specifically when it comes to the stock market—on Monday, Feb. 5. Eric Judge, a UConn alum and a financial advisor at Edward Jones, gave advice for prospective students who sought to earn money through investments.
He began the discussion by describing why the United States is unique when it comes to the economy. The fact that the democratic system set up the system so that companies thrive is why the stock market is a major component of the economy, Judge stated. When getting into finances and investments, Judge advised students to “look at where you’ve been and where you’re trying to go” when it comes to their financial situation. Stocks and investments must be thought of in the long term, not as a quick way to earn money.
For those who are not familiar with stocks, there are two types. Common stock and preferred stock, the main difference being that for common stock, shareholders have voting rights whereas preferred stocks give none. Yet both of these stocks can allow you to earn money in two ways: through capital appreciation and dividends, according to Judge. The first aspect is what most people think of when thinking about the stock market, where traders buy stocks at as low a price as possible, and sell them for a higher price later on. Yet dividends are meant for “when you are waiting to sell your stocks, you get dividends as regular returns on your investment,” Judge explained.
When looking at which companies to buy stock in or invest in, Judge highlighted three strategies for looking at investments. Quality, diversification and considering a long-term perspective. The quality refers to the quality of the company and how secure you feel they are. Diversification is the idea that you should not put all your eggs in one basket, or do not invest solely in one company. The long-term perspective is about how well you think these companies will do in the future, these should be considered in 10 year increments, not just within a year or two.
Society gave the dollar value, while they didn’t for the paper. Today the challenge is to be widely accepted to have value.
UConn alum Eric Judge
At the workshop, analyses of two companies were given to the audience: an analysis of Apple Inc. and Alphabet Inc., also known as the parent company of Google. These reports were done by research analysts who “look at sales and profits and try to estimate how well these companies will do in the future,” Judge stated. He went on to remind the audience that these are in no way recommendations for them to invest in these companies, he was simply using them as examples because of how large they loom in their respective markets. As a warning for students who are eager to start investing, Judge said that “you can lose everything in investing,” if you are not careful.
The difference Judge highlighted in his examples is the fact that Apple provides dividends to their investors, while Google does not. “If you are a part owner, you get part of the profits,” is what Judge stated was the case for some stocks. Some companies like Google do not give dividends back to investors, instead they must rely on their ability to choose proper times to sell their shares and get the highest payout.
There are differences between each type of stock, ranging from aggressive, small and mid capital, large capital, income and cash. An example of aggressive capital that Judge used was Bitcoin, or cryptocurrency. The value of these stocks change dramatically in very short periods of time. Judge reminded the audience that these values are not inherent. Using a one dollar bill and a sheet of paper, Judge asked the audience what the difference between them was. “Society gave the dollar value, while they didn’t for the paper,” Judge said. “Today the challenge is to be widely accepted to have value.”
When it comes to diversification, Judge explained how stocks and industries can be divided. Apple and Google would be considered technology, and there are other categories such as retail, real estate, healthcare and more. When one of these areas does well, it does not necessarily mean that another area will do well too. It’s best to spread your investments over many industries and not relying on capital through one, Judge advised.
To conclude the workshop, Judge explained to students that the value of goods and capital changes. He brought up inflation and stated that “a dollar today will probably be more valuable than tomorrow.” By investing in stocks with compounding interests, Judge told students that “when you do investing well, your money starts to work for you.”