The Stock Market

[georgexu94]

A good day to Dragon Cave friends and aquaintances!

 

Stocks or also called 'shares' are investment on companies. Companies need to fund their business and they do it through stocks.

 

Now, this is where it starts to be confusing, the stock market is where stock exchange happens, people buy and sell stocks.

 

I don't understand this parts. And I have a billion of questions ( Obviously, that is a hyperbole, or so I hope). Anyone here willing to educate me or anyone here too who is interested to learn? Some stock brokers? Shareholders themselves?

 

Feel free to discuss. Talk about some tips as well if you are willing.

 

(Disclaimer: We all should take note that some concepts vary from area to another but I think the common grounds are many.)

[georgexu94]

To be honest, my problem was how to look at whether a share of a company will go up or down. I ask a lot of people, some of which are investors and some are stock brokers. They all say that you don't, but you study the past history for trends.

 

Also, one problem got me is that it's about price-demand. However, why would people want to buy the company in the first place? Nobody can give me satisfactory answers.

[7Deadly$ins]

Because companies make money. You want to own things that generate money.

[georgexu94]

But then the shareholder gets only cash dividends which is just very small (compared to the invested money) and it's not still even sure that there will be dividends at the end of every good year. I'm spending money on Microsoft, Google, Apple and Office Depot (I seriously do not know what that blasted company is but I saw it's cheap and it's earning me money.) and I'm losing money overall. I can't believe it. It didn't do me good, really. Lucky thing that it's all just a simulation game. Although the data is very real. The money isn't; so, I didn't really lose real money but imagine if I had used real money.

 

Edit: Oh great. I'm being paranoid of my real invested money. As if I got these strange feelings that my money would disappear because I'm not sure how all this huala bala thing works.

Edited November 13, 2014 by georgexu94

[Fuzzbucket]

"Always remember the value of your investments may go up or down."

 

I will not buy shares. It's just gambling, basically, but gambling where the rich who can afford hedge funds will always win - and I can't see the point.

[georgexu94]

I will not buy shares. It's just gambling, basically, but gambling where the rich who can afford hedge funds will always win - and I can't see the point.

This. *emphasises* I love you, fuzz! I agree! I found someone who have the same viewpoint. Well, except the rich. In our country, even those with small salaries can "invest".

But yes, I see this as a "betting game" or gambling, as you put it.

 

The only reason why I got into this mumbo jumbo is because one, we studied these weird stuff corporations do like issue stocks, bonds and buying back the stocks to go to their treasury stock. Two, the other reason is my sister who took Management as opposed to my being Management with Chem, dragged me to this nonsense and invested part of my money. Well! She said that I should start early while I'm still a student. (She's now a graduate by the way.) She says that I should grab the opportunity and not waste time. I regret all this as I don't want to be stuck with this cycle.

 

Oh the weird and stupid things business-and-money-minded people are doing!

I thought that the "tippler" and the "businessman" in Saint Exupery's The Little Prince was an exaggerated thing and no such people exist. However, now I know that it is real. The reason why the market price goes up, well one reason, is because of people wanting to buy (price-demand in economics) and they want to buy because they think they can earn money because the market price is going to get higher. (See? The reasoning of the tippler getting drunk and the businessman's reason of obtaining more stars!)

 

The more I study this business, the more my head aches.

 

*end of rant* I apologise for the long post.

[Wahya]

I own stocks in utilities. People always need utilities.

 

As long as you're careful which companies you invest in (do research, look at trends, consider the current economy, etc.) you might make a bit. Making a lot isn't all that easy IMO, but you can make a small profit if you're savvy and willing to take a gamble. Remember, never invest more than you can afford to lose.

 

Bonds on the other hand are WAAAAY different. If you get government bonds, they are "guaranteed" (I say that loosely, because we can't really trust the government all that much, but generally speaking, bonds are very, VERY stable), so you won't lose money unless you cash in early and accept the penalties for doing so (if you make enough interest, even taking the bond early won't cost you a penny out of what you invested). The only downfall I've experienced with my bonds is when the economy declined in the late 00's, they upped the time I have to wait for it to mature.

 

To be fair about all of this, I didn't buy any of the stocks or the bond I've mentioned above myself; they were all gifts to me via family members, but after taking lots of business classes, I understand how they work and why said family invested in what they did. I don't watch any of it as closely as I should, but I do know about them generally (how they're doing, when I get dividends, etc.).

Edited November 14, 2014 by Wahya

[georgexu94]

Firstly, I want to say,  I had a good day today just by sharing these things to you last night. Well, I found my lost lunch box. That is one. Another is, I asked a friend who is going with this hoola baloo in business and he helped me understand more of this stock market. It's really helpful and his teaching is really nice. I love our discussions. This includes bonds. Well, at least I know how this thing works, how I am earning money, I can finally have peace of mind and be able to sleep.

 

That was posted in the Emotional Support thread. That's my update

 

Secondly, thanks fuzzbucket and Wahya for sharing what you know. It means a lot to me.

 

Lastly, Wahya, that's nice that you know what you were doing. I didn't. My sister simply just dragged me wthout knowing herself (at least I think she has little knowledge of this because she can't answer my questions and would say that she is new and don't know it herself). Anyway, nice gifts that your family are giving you.

[georgexu94]

Have attached a new poll. I know of MM (Modigliani and another person whose name also starts with an "M") Dividend Irrelevance Theory but since it's assuming no transaction fees that are present in real life, I would take Gordon and Lintner's view.

 

Assuming you are an investor, what do you prefer? A corporation that doesn't give out lots of dividends (much like an income for you) or do you want them to refund their earnings to make the value of the shares increase, also knows as capital gains. It cannot be both! Everyone would love that but it's a balance on where Corporations put their earnings in.

[Fuzzbucket]

Can't vote. You don't have NONE OF THE ABOVE. Which would be my vote.

[georgexu94]

Can't vote. You don't have NONE OF THE ABOVE. Which would be my vote.

That's alright. The poll is for investors only. Not for those who do not want anything to do with this financial tool. I got curious since we're discussing these financial iinstruments in Finance.

[tjsweepers]

Also, one problem got me is that it's about price-demand. However, why would people want to buy the company in the first place? Nobody can give me satisfactory answers.

OK, so a person wants to start a company but he needs money to do it. So he gets 3 friends to chip in to get him going. In return he give's each person a quarter stake in his company. 4 people = 4 shares. When the business gets going, it makes $1000 profit. Each shareholder gets a quarter or $250.

 

This is effectively how shares work. With the stock market, what you 'buy' is one share of the company, so when it makes a profit, it is divided up between the shareholders. This is the dividend.

 

So a company that is doing well, or just came out with the 'next big thing' will make a profit, this will make more people want it.

 

 

This is the 5 year price graph for Tesla motors. Assume that they kept the amount of shares the same. From 2010 to 2012 they were in developmental stages and didn't have a product released. A share cost around $20. The first big spike in 2013 was when there cars became available to the public and everyone saw that they were going to make money which = dividends. The first dip was when there was a manufacturing defect that caused fires. People saw this as bad (that the company would not make money) and sold their shares.

 

This also shows the buy low sell high idea. If you bought 5 shares in 2012, 5 x 20= $100, then waited until 2014 to sell at $200 a share. 5 x200= $1000. That is on top of the dividends.

 

There are so many factors that determine the trade cost, public perception, products, amount of dividends etc...

 

This is the dividend of a company called windstream holdings, they finance 'green' technology like wind turbines. their quarterly dividend is $.25, 4 quarters = 1 year. so every year, just for having a share, you will get $1.

 

Now imagine you have 5000. That's $5000 a year that you didn't have do anything for.

 

How much are you willing to pay upfront for that?

Edited January 26, 2015 by tjsweepers

[georgexu94]

@tjsweepers: Hooray! Thank you so much for this data and graphs as well with the explanations. I actually got a bit more information and studies since my last update so it wasn't actually necessary but thanks nevertheless. I actually learn more with Finance class, Economy and Investopedia. The problem with my country (Phil.) is a very small people invest and around 10% only know how to do it properly even with its accessibility to almost anyone with a stable income. The thing is the other big percentage treats it as gambling, which shouldn't be the case. That's why there are free lectures in the PSE (Phil. Stock Exchange) to educate the public. Anyway, some arguments here about this financial instrument being only available to the rich may not necessarily be true here in the country. Prices are cheap with only minimum Php 5000 (around less than US$1000) start-up capital to open an account in the largest brokerage.

 

Also, I see that our economy is increasing with a bull trend this year 2015-2016. So it's a good time to start now. (Reason why my sister grabbed the opportunity and grab me along).

[orrrangeee]

I'm in Canada, and since the oil has gone down all the major companies are taking off thousands of employees and the stock market has dropped low and a ton of people have lost money. It sucks right now, lol.