Friday, July 27, 2007

Stock Market

Recently our country's stock market is doing well. Reached a high a few days ago. But yesterday it went down and today during lunch time went down again by 20 over points. Now i am not sure how many it translate to in $$$ but 1 point drop is already a lot of $$$.

Met a guy recently and he said the moment you see house wives getting into stock market, you will see the danger signs already. The last time market was bad was in 97/98. The 10 year cycle. Old college lecturer mentioned to the class, during good times do not go into stock market. Go in when the market is down. But you know humans being humans, where got such thing? Thats why when market crash, a lot of hopes and dreams went with it. But there will be one or two who will go in and make big $$ when market is down.

But what is the stock market? How did it came about?

Stock Market History

History of stock market trading in the United States can be traced back to over 200 years ago. Historically, The colonial government decided to finance the war by selling bonds, government notes promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company to raise their own money. This was a new market, and a new form of investing money, and a great scheme for the rich to get richer. A little futher on the history tumeline, more specifically in 1792, a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange(NYSE). At the meeting, the merchants agreed to meet daily on Wall Street to daily trade stocks and bonds.

Further in history, in the mid-1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company. History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies.

By 1900, millions of dollars worth of stocks were traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.

History brought us the Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fueled by highly subjective speculation about the company’s future.

This was the pretext for appearance of such stock market giants as NYSE. History books tell us that the reason the NYSE is so highly regarded among stock markets was primarily because they only trade in the very large and well-established companies. It acted as a more stable investment alternative, for people interested in throwing their capital into the stock market arena. The smaller companies making up the stock market formed into what eventually became the American Stock Exchange (AMEX). Contrary to the 80-year old history, today the NYSE, AMEX, NASDAQ and hundreds of other exchange markets make a significant contribution to the national and global economy.

The growth in the number of market participants led the government to decide that more regulation of the stock market was needed to protect those investing in stock. History was made in 1934, when following the Great Crash, Congress passed the Securities and Exchange Act. This act formed the Securities and Exchange Commission (SEC), which, through the rules set out by the act and succeeding amendments, regulates American stock market trading with the help of the exchanges. It also includes overseeing the requirements for a company to issue stock shares to the public and ensures that the company offers relevant information to potential investors. The SEC also oversees the daily actions of market exchanges and how they trade the securities offered.

Although historically, investing in stocks was a “hobby” for the rich, an average person too soon came to realize the value of the investing in stocks vs. traditional assets like land or a house.

Stock Market - Explained in Brief

A typical dictionary definition for stock is (the capital raised by a corporation through the issue of shares entitling holders to an ownership interest (equity); "he owns a controlling share of the company's stock").

Stocks are usually explained to be a collection of shares in a company,and are also referred to as stock shares. A stock is a certificate (sheet of paper) declaring you own a small fraction of that company (corporation). To explain further lets look at some of the reasons for why a company might want to issue stock. A company issues a stock so that it might use the money from a stock offering to buy equipment, hire people, advertise, or expand facilities. Basically, stocks help companies grow

Trading in stocks on the stock market is typically driven by speculation, based on company news and performance factors. There are two ways to try and find the market value of a stock. Stock value is determined using some type of cash flow, sales or earnings analysis. This form of stock valuation is based on historic ratios and statistics and aims to assign market value to a stock based on measurable attributes. Another way a stock market can be be explained is to ask one to look at how much investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for. In other words, it explains the market’s supply and demand. This form of stock valuation is very hard to understand or predict, and it often drives the short-term stock market trends.

In 1865, the New York Stock Exchange opened its first permanent headquarters near Wall Street in New York City. The irony of stock market is that companies live and die by their stock price, yet for the most part they don't actively participate in investing and in trading their stocks within the market. Companies get funds from the securities market when they first sell a security to the public in the primary market, commonly referred to as an initial public offering (IPO).

In the subsequent trading of these shares on the secondary market (what most refer to as “the stock market”), it is the average investor exchanging the stock who benefits from any appreciation in stock price. Fluctuating prices are translated into gains or losses for these investors as change of ownership of stock takes place. Individual traders investing in the market acquire the full capital gain or loss after transaction costs. The original company that issues the stock does not participate in investing and taking of any profits or losses resulting from these transactions because this company is not supposed to have any monetary interest in stock market transactions.

From the start there was not need to explan that individuals couldn’t realistically be buying shares of stock directly from the company. Stock market brokers have facilitated the obstacle of individual buyers dealing with companies issuing the stock. A stock broker is someone who performs transactions in stock on a stock market as an agent of their clients who are unable or unwilling to trade for themselves. A firm that buys stock from the company and resells it to the investors is known as the underwriter.

Technology and internet have made investing in the stock market incredibly accessible to the mainstream public. Electronic trading began to grow in popularity by mid 1960s and by 1968 NASD (National Association of Securities Dealers) created the National Association of Securities Dealers Automatic Quotation System or NASDAQ. The trading floor of the ‘new stock market’ is now virtual computer space driven by 21st-century technology that makes investing in stock market EASY. The new technology brings news and other info to the investor, and stock trades can now be done from around the world at lightning speed. Internet stock market trading continues to grow and a special study by the SEC found that as of the second quarter of 1999 there were 9.7 million investors with online trading accounts.

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