Think of this as your prep course in the world of investing.

A smart and savvy girl wants to understand how the world around her works and that includes the world of finance.

Whether you need to dip in for a quick bit of info or immerse yourself like Anita Ekberg did at the Trevi Fountain in La Dolce Vita, The Golden Girl Fountain of Knowledge is here for you. Drink it up girlfriend, it’s good for you.

Stock, also known as equity or shares, represents a portion of ownership in a company or business.

When a private company is formed, the owners are listed as holding all of the company shares. For example, Prada – which issued an IPO on the Hong Kong Stock Exchange on June 24, 2011 – was for nearly a hundred years prior a privately held company, owned by the extended Prada family, having begun as a more humble leather goods shop in Milan, Italy in 1913, with Mario Prada at the helm. Up until the summer of 2011, if you wanted to own a piece of Prada, you had to be content with a handbag or a pair of boots (and who wouldn’t, really?).

A public company - which Prada later became - is listed on a stock exchange, allowing anyone to become a partial owner of the company by purchasing its stock. For example, as you try on your fourth pair of black lululemon yoga pants, you might consider buying shares in the company itself. Lululemon Athletica is a publicly traded company, listed on the Toronto Stock Exchange (TSE) and the New York Stock Exchange (NYSE), meaning not only could you own lululemon pants, you could own lululemon.

The sum of all the transactions between buyers and sellers of company shares is what we call the stock market.

Capital is a broad term, describing the money raised by a company, or invested in a security. Stock, or equity, is just one type of security in which capital can be invested. Consequently, the stock market (also known as the equity market) is just one part of the overall capital market.

Some of the other specific markets within the capital market system include the bond market, the commodities market and the currency market. These are all types of securities in which you can invest capital.

On a typical summer Saturday morning in the city, you may be familiar with the sight of a farmer’s market - stalls are set up along a city street or in a parking lot, where farmers sell freshly-picked produce and handmade goods. Buyers find it convenient to purchase their favourite peaches and homemade pepper jelly in one spot rather than driving around the countryside. This is a market, not all that different from a capital market (hence the same name – ‘market’ – right?!).

The diamond district in Antwerp is another example of a market. Here, diamond merchants, cutters and jewelers have set up their businesses within the same location, making it easier for buyers, sellers and diamond specialists to gather, share information and conduct transactions with each other.

Capital markets work on the same principle. It is the sum of all the buyers, sellers and intermediaries who exchange money and securities around the world. Although there is no physical location to visit, a capital market operates through stock exchanges and investment dealers, creating a virtual meeting place where buyers and sellers do business with each other.

A stock exchange is a virtual marketplace where owners of shares can buy and sell from each other. This is sometimes referred to as the secondary market, because you are not actually buying stock directly from the company, you are buying it from someone who currently owns some of the company’s stock and is willing to sell some or all of their shares.

The stock exchange is what allows your investment to have liquidity, one of the main advantages of owning shares as an investment. If one day you decide you simply must have that pair of Jimmy Choos, you could sell the bank shares your grandfather gave you on the stock exchange to a less well-heeled but perhaps more long-term thinking investor who is looking to bulk up on banks. Think of it as eBay for your stocks.

Examples of stock exchanges are the Toronto Stock Exchange (TSE), the New York Stock Exchange (NYSE), the Hong Kong Stock Exchange (HKSE) and our favourite, the Financial Times Stock Exchange (FTSE) which is pronounced, “Footsie.” Cheeky Brits!

If a company chooses to raise money in the capital markets, it can either issue a bond in the bond market, or stocks in the stock market.

A bond does not provide ownership. It is really more of a loan that you give the company and they will pay you back with interest at a defined point in time.

If you buy a company’s stock, you become part of a larger pool of owners who will all share in the company’s profit by receiving dividends or shareholder returns. You will remain an owner until you decide to sell your shares in the company.

People who own a stock are called investors or shareholders. Stockbrokers, traders and other investment professionals provide advice and transaction support to investors interested in buying or selling stock. They help companies get their stock listed on the various stock exchanges around the world and help investors choose, find and buy the stock that is right for them.

Alternately, a company may decide to raise the money it needs privately, by borrowing from a bank or pursuing private equity.

There are advantages and disadvantages to any of these financing options and a company will often work with a corporate finance team at an investment dealer in order to weigh their options and find the right financing solution.

Yes! If you are employed by a company with a pension plan, those funds are invested in the capital markets. According to the Canadian Pension Plan Investment Board, 17 million Canadians participate in a pension plan of which nearly 60% of the funds are invested in equities. That means, roughly 1 out of every 2 people in Canada is invested in the stock market.

Selling shares of ownership is a means of raising money for a company hoping to finance its growth. As any business owner knows, there are times when a company needs to find a large chunk of money to grow in an area they expect will lead to greater profit. As a result, they are willing to trade a stake in those future profits for an investment of cash.

Make-up Art Cosmetics (M.A.C.) is an example of a company that traded partial ownership for the chance to make it to the big time. The company started out in 1984 as a home-based business of make-up artist, hairstylist and photographer, Frank Toskan and entrepreneur Frank Angelo. The company was an instant cult favourite and within 10 years, the two Franks saw the chance to become a major global brand. In 1994 they sold a controlling interest of their company to Estee Lauder for an estimated $38 million, giving them access to mass production and worldwide distribution. The expansion was a massive success. Shortly after Angelo died in 1997, Toskan sold his remaining shares to Estee Lauder for $60 million. Today M.A.C. generates sales of more than $500 million annually.

Alternatively, many companies, such as Starbucks, wish to build commitment and long-term thinking among their executives and employees, encouraging them to become owners of the company through share purchase plans and stock incentives. This helps to build company loyalty and align the interests of employees and management.

Because you can’t visit the stock market and hand over your cash, investors use the help of investment advisors (IA’s) also known colloquially as stockbrokers, to transfer the exchange of money and securities.

If you are interested in buying a certain stock or selling some you own, the first step is to speak with an IA. An IA is regulated by provincial authorities to buy and sell stocks on behalf of investors. The IA has access to research reports and historical data and it is her job to watch the market activity of the day, provide you with advice on what and when to buy and sell and then execute those trades on your behalf.

Risk is a very big topic. Many books have been written on the psychology and complications of risk. Remember the old game show, The Price is Right? Do you stick with what you have or trade it for the wonders that may lie behind Door #1?

There is the risk that if you buy those shoes today at full price, they will go on sale next week. However, if you wait for a lower price, there is the risk that your size will be sold out. Like everything in life, it helps to have a clear idea of what you want and only then consider which options will help you best meet that goal.

There is no question that on a daily basis, some stocks go up and some stocks go down. On some days, all stocks may go up, down, or both. Over the long-term, it has been proven that the stock market generally rises over time and investors who ignore the small fluctuations and stay invested do better overall than those who try to time the market.

The investment industry is full of wealth management professionals who can provide you with a range of services to help you invest in the capital markets. Some professionals, such as Financial Planners, may provide you with advice, but are not licensed to execute trades for you. Other services, such as Discount Brokerages, may execute trades for you, but are not authorized to provide you with advice. Full-service brokers, also known as Investment Advisors, are licensed to provide investors with both advice and trading execution. And of course, there is always your Uncle Moe, who always has plenty of hot tips…

Why is a Gucci silk dress more expensive than one from Banana Republic? Stock prices are determined based on what people are willing to pay for them. Certain items hold their value longer than others and will continue to appeal to buyers long after their original purchase. For example, Royal Bank of Canada stock has demonstrated over time that its value continues to rise and in the meantime, offers its investors benefits such as regular dividends. Smaller companies that have a shorter history or a more sporadic return on investment may sell at a lower price.

An investment professional can provide you with the historical highs and lows of the stock you are interested in. She will also look at current research reports from analysts who study the industry of that stock. These reports will provide estimates of what they think the stock is currently worth and whether they expect it to rise or fall in the near future.

Analysts are a bit like trend forecasters. Say, for example, they follow the skirt market. They might say something like this: Mini skirts are very big for spring right now but we would recommend investors exercise caution on the popular A-line Armani mini skirt currently on the market, which we expect will be significantly marked down by June. We anticipate a widespread return to pencil skirts for fall, therefore we are recommending a buy on the narrower Club Monaco version in pewter, which will work throughout the summer and can be paired with boots for fall.

Now wait just a minute – before you think, I must have that pencil skirt, this is where your Investment Advisor comes in. She might say, yes, the Club Monaco is showing good value, but darling you already have six ‘pencils’ in your portfolio. What we really need to look at for you, are some great pants to hedge against those cool nights and provide some diversity to your wardrobe.

Analysts develop a reputation for being experts within the industry they follow and therefore some research is deemed more reliable, more popular and often more expensive to access. Investment Advisors at full-service brokerages have access to the research reports their company buys. Having access to high-quality research is very important to IA’s. DIY investors can also buy their own research or access a variety of free online research. It all depends on whose views you enjoy reading, can understand and most of all, you can rely on.

If only we knew the precise answer to that, we would be spending our weekends hanging out on our yacht yukking it up with George Soros and Warren Buffett.

When you buy a stock, it is important for you and your Investment Advisor to be very clear about what you want to get out of it. Perhaps this is the type of stock that you expect to give you a solid eight percent return, year after year. Maybe you are in it for the dividends. Or perhaps you are expecting to double your money in three months and then you will sell it. Having a clear sell discipline when you buy the stock is very important so that you don’t get caught up in the very human experience of emotion, fear and greed when the stock starts doing its rising and falling thing.

Dividends are a girl’s best friend. Stock prices go up and stock prices go down, but dividends are forever. Do you hear what we are saying?

A return is really only an idea until you sell your investment. If you buy a stock at $20 and it goes up to $30, you’ve made a wonderful $10 return on your investment, but you have to sell your stock to actually take that money in. And if it’s a good investment, you may not want to sell it for many years.

Dividends are the way a company gives a more immediate reward to its shareholders. The company takes a portion of its annual profits and divvies it up among its shareholders in the form of dividends. This is the company’s way of saying: shareholders, we love you.

Investors may choose to receive dividend payments in cash or take part in a dividend reinvestment plan, whereby the dividend money is automatically used to buy more shares in that company. This is the shareholders’ way of saying: company, we love you too.

Stocks and bonds are like bacon and eggs. You can certainly have just eggs or just bacon, but the truth is, they are better together. And don’t forget the orange juice. Like a well-balanced diet containing bits of each of the four basic food groups, your investment portfolio should be well-diversified with a bit of each of the five basic asset classes.

The five basic asset classes include: equities (stock), fixed income (bonds), cash (money markets), real estate (hard assets) and alternative assets (hedge funds, art, vintage cars and other appreciating assets). No matter how much we have tried to tell ourselves otherwise, shoes are not an asset class. We know - it’s just not fair.

Mutual funds, exchange-traded funds and index funds allow smaller investors to pool their money together and have access to a bigger range of investments than they would otherwise be able to afford. For example, if you have $500 to invest, that might only buy you 10 shares in a bank that is trading at $50 per share. However, you could potentially buy 50 units of a fund that is invested in numerous banks around the world, which would greatly diversify your risk. Investors who can afford to invest in larger positions often prefer to own the securities individually, allowing them the flexibility of precisely choosing the companies they own.

Your investment advisor will start by asking you questions to discover how tolerant you are to volatility – can you handle it if your stock swings wildly every day or would you only sleep at night knowing your stock hasn’t changed in price for the past fifty years? Once she understands your investment goals, your investment advisor will also give you a recommendation of sectors you might want to invest in. For example, she may say, based on your goals, let’s construct a portfolio that is 30% in financial services and 20% oil and gas and 10% retail. Then you have to choose which stocks you want to buy in those sectors.

We believe that you should start with what you know. If you are choosing stock in financial services, what do you know about the bank you deal with? Is it a company you like and believe in? Has it been in the news lately for good reasons or bad? Your investment advisor can provide you with the research and a recommendation of how the company is doing financially, but it’s important that you also be aware and use your own common sense and intuition. If you believe that the latest Victoria’s Secret Miracle Bra truly will revolutionize the bra-wearing public, maybe it’s worth looking into making an investment.

An RRSP, or Registered Retirement Savings Plan, is like a wrapper that you put around your investments, making them safe from the need to pay taxes on any gains or growth your investments experience, until such time that you retire and start taking the money out to spend. (Did we mention that there is tax to be paid when your investments make money? Yes, indeed…) The Canadian Revenue Act determines what investments are RRSP-eligible, usually the stocks or bonds of any Canadian company. There is also an allowance for you to hold foreign stocks or bonds up to a certain percentage of the overall value of your RRSP portfolio.

Your investment advisor or financial planner can help you make the right decisions. If your goal is to build a nest egg of savings, money that you will put aside and grow to use in retirement, investing within an RRSP is probably your best choice. It is a good idea for most Canadians to invest as much as they can within their RRSP because of the tax-savings. However, to all good things there are limits. Your annual tax assessment will tell you how much you can invest each year in an RRSP. Anything outside of that will have to be invested outside of an RRSP structure and is subject to capital gains tax, dividend tax and income tax.

When you buy your groceries at Whole Foods, you might say you receive full-service. There are employees strategically located around the store to help you choose between the Guatemalan coffee beans and the Costa Rican, to give you yummy samples of the cranberry quinoa salad, to pack your groceries into paper, plastic or recyclable bags and to help you to the car park if you wish. When you buy your groceries at the more price-conscious grocer, you pack your own groceries into your own bags and there is no friendly butcher who will slice your roast beef just the way you like it and confer with you on appropriate searing temperatures. However, you may find that the price for the same box of soy milk will cost several cents or dollars less at, say, Superstore than it does at Whole Foods.

A full-service broker or investment advisor will similarly work with you to understand your financial goals and make recommendations for your portfolio that are unique to your situation. The IA will execute your trades, monitor your investments and provide ongoing advice as to when to make adjustments. In return for these services, you pay either a commission on each trade or an overall annual fee. A discount broker features lower commissions or fees, but offers none of the advice, discussion and monitoring that the full-service IA will give you. Discount brokers are appealing for investors who know exactly what they want and simply need a service to execute their trades.

Private equity is capital invested in a company in exchange for a significant stake in its ownership. The shares are exchanged privately rather than traded through a stock exchange.

For example, when fashion designer Roberto Cavalli recently needed an infusion of cash for his company, he turned to Clessidra Capital Partners, an Italian private equity fund. Clessidra was to give Cavalli the funds he needed in return for a 30 per cent ownership stake in his company. Mr. Cavalli did not want to sell a larger piece of his company, in the hopes of one day taking the company public.

(FYI…the deal fell through in August 2009 when the two parties could not agree on the fashion house’s value. It’s like when you put your home on the market. It always seems worth more than the realtor tells you.)

An initial public offering (IPO) is the means by which a private company “goes public”, or begins to offer its shares for sale on a stock exchange.

The process of helping a company “go to market” or prepare its shares for sale, is called underwriting. When a company decides it would like to sell its shares publicly, it chooses an investment dealer, or a group of them, to act as its underwriter. The underwriter recommends the appropriate type of shares to issue, an initial offering price and their best estimates on how investors will respond. On behalf of the company, the underwriter files all the appropriate paperwork, such as a preliminary prospectus, with the securities regulators in each province or region where the shares will be sold.

When lululemon decided to go public in July 2007, it turned to Goldman Sachs and Merrill Lynch to underwrite its offering. Do you remember the line-ups for the first iPhones that went on sale? Or the frenzy that occurred over new Cabbage Patch dolls back in the 80’s? Same thing here, with that yoga pant stock creating the equivalent of a half price designer shoe sale…can you say market frenzy? The first lululemon shares were offered at $18 on July 26, 2007, raising $397 million for the company in one day. Nearly 400 institutional investors had lined up to buy these first shares, a huge sign of early success.

Institutional investors often have the advantage of signing up early for IPOs. (You know how it works, the more you shop at your favourite boutique, the more likely you are to become a favourite customer, getting a sneak preview on new merchandise, access to special sales and so forth. The same goes in the world of finance. Institutional investors shop a lot.)

The next day, July 27, 2007, was the first day lululemon shares traded freely on the Toronto and New York stock exchanges and opened at a price of $25 each. This means that all those people who weren’t able to snap up the shares for $18 in the IPO were still interested in buying them, and those that had bought them the day before were now willing to sell them - for $25 each. By the end of the first day, the price went up to nearly $30 per share. Not only did lululemon successfully raise the capital it needed, early investors had the chance to make a very good immediate profit.

An IPO represents the first time a private company becomes a publicly listed company. As a public company, its shares are then freely traded on a stock exchange, or secondary market. At some point in the company’s evolution, however, a public company may wish to again raise money in the capital markets by offering more shares. Because these shares will be “new” and originate from the company itself rather than those already trading on the exchange, the process is called a “new issue” or “new offering.”

A new issue of shares can be sold to the market in a couple of different ways. The investment dealer, or underwriter, may buy all the shares for their house account, selling them in turn to their clients and the broader market. This is called a bought deal, because the investment dealer has bought all the shares, ensuring the company will receive the financing it requires.

Alternately, the investment dealer will act as an agent, selling shares on behalf of the company to the broader market without owning the inventory itself. This is called a best efforts deal.

As with an IPO, institutional investors and large clients often have easiest access to new issues, however individual smaller investors can still participate by being proactive and doing their research. Individual investors often participate in new issues and IPOs without realizing it, through any institutionally-managed investments they may hold, such as a pension plan or mutual fund.

There are many ways to be diversified. First, by making sure you have a good balance between the diverse asset classes (i.e. bonds, stocks, money markets, real estate, alternative assets such as hedge funds and, of course, GOLD). Next, you may wish to be diversified among sectors and among geography. The idea is to reduce the risk of relying too heavily on any one area of your portfolio.

Businesses do this all the time. For example, Target is a very successful brand that marketed very clearly to a precise demographic for years: the economically-aware suburban family. Several years ago, however, they realized their biggest customer, the young moms of the 60’s and 70’s had, um, become older…and when had grandmothers become so young and hip-looking? Target realized that relying on one age group was a risky strategy and they needed to diversify their branding and product mix in order to appeal to a broader range of consumers. By sexing up their image and introducing new celebrity-endorsed product lines, the company attracted a younger, more status-conscious consumer, while retaining its tried and true brands for its loyal following. Diversity done!

So, ladies, have you drank enough (that would be knowledge, not Cosmos)? This certainly doesn’t cover everything. But it’s a start. Consider yourself officially indoctrinated into the Golden Girl club (a.k.a. Alpha Beta Au). We have plenty more to share (just check out the rest of the website)!

We bid you welcome Goldie.