How does the stock market work?
Let us start from the basics. When a company is started, it needs a capital for its startup. Capital is all the money that is invested to start a business. Capital can be raised in two ways. One is by borrowing money, which will be paid back later. Second option is issuing stock to those, interested in sharing the profits of the company. By this we mean, people who buy the stock will help in the venture of the company in return of which they will have a share in the profits the company makes. By issuing stock, the company can raise more capital and it does not have to bear the interest as in case of repayment of debt. But one of the disadvantages involved in issuing stock is that shareholders share the company ownership and have a say in deciding the company policies. Stock market basics • Stock: The ownership units of a company are referred to as stock. • Stock price: The price for which a specific stock sells is the stock price. Health of the economy, the trends that prevail in tradi
It all revolves around the housing crisis. People took out mortgages that they couldn’t afford. Banks and mortgage companies loaned out money to theses people. Now theses people are defaulting on their loans and banks are losing a lot of money. This causes a snow ball effect because now banks don’t have money to loan out to other business, people don’t have money to spend on consumer products, etc. In addition to this, the last adminsitration sent all the low to mid pay manufacturing jobs overseas. All creates a gumbo of problems that is reflected in the stock market. No jobs, no demand for products, and no money to lend out. Some stocks are doing just fine but are still getting punished because the overall market is in a slump people are taking their money out of the market…just in case and to stay liquid.
Dear Straight Dope: I never took Econ 101, and though the Wall Street Journal business pages appear to be written in English, I can’t fathom the jargon. Also, I am perennially broke. I look to you for enlightenment so I might begin to understand the world of high finance. What is the connection between the price of a stock on the stock market and the actual “health” of a business? I understand that an IPO raises money for a company, and that shareholders then have some sort of say-so in managing the business, but after the stock is owned by someone else, why should its price on the stock market, high or low, have any bearing on whether or not the company is profitable and pays its bills? Does WidgetCo have to declare bankruptcy just because their stock tanks–couldn’t the business be doing just fine? And finally, how do you become rich simply owning stock rather than speculating? Aren’t the yearly dividends a pittance compared with the purchase price? If these questions don’t make sens
Listen to the stock reports sometime, or try to read that impossibly tiny print they use to list them in most newspapers. They’re filled with words and phrases like NASDAQ, the Dow Jones, blue chip stock, and composite index. It’s enough to make any potential investor pack up his portfolio and go back to watching soap operas. First, what exactly is the stock market? The stock market is a generic term that encompasses the trading of securities. This trading takes place in stock exchanges. There are three major stock exchanges in the United States: • Formed in 1792, the New York Stock Exchange (NYSE) is the largest organized stock exchange in the United States.
