Our Program The Stock Market Seminars Members Login

What exactly is the Stock Market?

The word stock simply refers to a supply. You may have a stock of shirts in your closet, or a stock of pens in your desk. In the stock market, stock refers to a supply of money that a company has raised. This supply comes from people who have given the company money in the hope that the company will make their money grow.

A market is a public place where things are bought and sold. The term “stock market” refers to the business of buying and selling stock. The stock market is not a specific place, though some people use the term “Wall Street” – the main street in New York City’s financial district – to refer to the U.S. stock market in general.

Why Companies Issue shares.

If a company wants to grow—maybe expand into markets, hire more people, or develop new products—it needs money. It could go borrow money from a bank. But then it would owe money. By issuing stock, a company can raise money without going into debt. People who buy the stock are giving the company the money it needs to grow.

Not every company can issue shares. A business owned by one person (a sole trader) or a few people (a partnership) cannot issue stock. Only a business corporation can issue stock. A corporation has a special legal status. Like a school, its existence does not depend on the people who run it. Under the law it is separate from the people associated with it, and has special legal rights and responsibilities as well as its own unique name.

And Why People Buy Them!

Owning stock in a company means owning part of that company. Each part is known as a share. If a company has issued 100 shares of stock, and you bought one, you own 1% of that company. People who own stock are called stockholders, or shareholders.

Shareholders hope the company will earn money as it grows. If a company earns money, the shareholders share the profits. Over time, people usually earn more from owning stock than from leaving money in the bank, buying bonds, or making other investments. As in Ireland at present, with inflation continuing around the 5% mark, people are becoming more aware that the current interest rates they are getting from current, savings or deposit accounts are slightly less than the inflation rate so therefore their cash, as an asset, is de-valuing. Inflation is like rust, it slowly eats away at your cash to the point where, unless you act on it, your money with be worth less and less year after year.

Voting Rights?

Stockholders in a company usually have voting rights. They vote on such issues as who will be elected to the board of directors—the group of people who oversee company decisions—and whether to buy other companies. Stockholders typically have one vote for each share they own. Every vote counts, but a stockholder with 5,000 shares will have more influence on the company than someone with only one share.

Most companies have annual meetings, where stockholders cast votes and ask questions of the company’s leaders. If they cannot attend, stockholders may use an absentee ballot to vote. Shareholders also receive quarterly and annual reports that tell them how the company is doing.

Rising Share Price – Rising Profits

When the price of a particular stock rises, that stock is said to be “up,” meaning up in price. When the price falls, the stock is said to have gone “down.” The terms “up” and “down” are also used to describe the rise and fall of the market as a whole.

As a company makes money, the value of its stock goes up. For instance, pretend you bought some shares of stock for €10 each. Since you share the company’s profits, if it does well the shares might later be worth €15 each. You could then sell your stock and make €5 on each share. If the company loses money, however, you would also share its losses. Those €10 shares might each be worth €3 if the company performed poorly or hit a rocky patch. We have a few of these ‘rocky patches’ the financial sector in Ireland & UK between February 07 & March 08.

Explanation of Fractions.

Over a period of time, the way in which stock prices were quoted has evolved. The earlier system of quoting stocks was done so in fractions and expressed in eights. The origins of this came at the end of the 18th Century, when stock markets first opened. At the time, prices were based on the Spanish Dollar, which is divided into eights.

E.g. If a stock was worth $10 and went up 1 and 5/8ths, it meant the stock rose by $1 and 5/8ths of a dollar.

In April 2002, U.S. stock exchanges, for the first time, began trading in dollars and cents. This change means that the way we trade today is different from times of old.

E.g. If a stock had gone from $10 to $11.10, then the stock is said to have increased $1.10 over it’s previous price.

Bear Market V’s Bull Market.

A Bull market encapsulates a period of time when share prices are said to be on the increase. The investors who believe the market will go up are said to be “bullish” and charge ahead adding confidence to the markets. More money is invested at this time.

The opposite to this investor confidence is said to be described as a Bear Market. Investors thread cautiously leading to the markets slowing down. This “bearish” approach captivates the idea of a wary & cautious investing.