The New York Stock Exchange (NYSE) is the largest equities-based exchange in the world, based on the total market capitalization of its listed securities. The NYSE is an auction market. At the NYSE, individuals are typically buying and selling between one another and an auction is occurring. The NYSE has over 2,400 companies that combine for $21.3 trillion in market capitalization. It’s also home to many of the big “blue chip” companies that have existed for decades, like Walmart, Exxon Mobil, or General Electric. This is partly because the exchange has existed since 1792.
Meanwhile, the Nasdaq stocks are considered more volatile and growth oriented. It also contains more companies than the NYSE, but has a wider spectrum in terms of the size of companies. Of course, the exchange is known for having the large tech-focused companies like Facebook, Google, and Amazon, but there are many smaller listings on the Nasdaq as well. In fact, there are around 1,200 smaller securities listed on the 46-year-old exchange with market caps of $200 million or less. More tech stocks will be found in Nasdaq unlike NYSE which houses more established “grandparent” companies.
Before buying a stock, investors should examine a company’s balance sheet, income statement, cash flow statement, and footnotes. These can be found in the company’s annual report, also called its 10-K. The publication of 10-K reports is mandated by the U.S. Securities and Exchange Commission (SEC). Investors can find them on the SEC’s public database, called EDGAR.
Once a stock has been analyzed, investors need to determine the potential return and volatility of the stock and whether that fits his or her particular profile. Another factor is how the stock fits in a portfolio. Most investors seek a diversified portfolio, hoping to achieve a target return while taking on the least amount of risk. Having a more concentrated portfolio increased the risk of big loss, but it also increases the total return potential. A stock’s risk and return profile affects the total portfolio’s risk and return profile, though by moving in the opposite direction of other holdings, a risky stock has the potential to make an overall portfolio less risky.