Until I started writing about personal finance a couple of years ago, it was a topic that I really didn’t know a lot about. I avoided thinking about it; my view was that it was a complicated entity that I really didn’t think I could break into. Especially because, when I was old enough to even start thinking about it, the economy was horrible. I finished my undergraduate degree in December of 2007, right before the economy tanked and I ended up unemployed and miserable. I didn’t have money, so why did the stock market matter to me?
Then, I started writing about personal finance. I decided that it was time to start getting a grip on what the stock market was all about. I’m not going to lie, its not exactly the simplest thing to get a grasp on. But it’s not so crazy that the average person couldn’t learn at least a little bit about it. Today, we’re going to look at a few of the basic things that every ordinary person should at least understand about the stock market.
Long story short, the stock market is basically a place to trade company stocks and such at set prices. Stock is how much is invested into a company by original capital or by investors. Basically people who buy stock are paying for part of the investment; you’re getting a piece of paper saying you “own” part of the company. This is why the stockholders have such a big say in what happens to a company; they literally own a “piece of the pie,” so to speak. The stock market is a compilation of all these various stocks (or shares, depending on who you ask the terms are used interchangeably).
Some people believe that the stock market is based on companies. While this is true, the stock market primarily fluctuates with people’s actions. People called brokers are buying and selling for people constantly. If people get nervous (like during the Great Depression), it affects everyone. If stock is not in high demand, the cost goes down, and that hurts the companies involved. This is why the market crashed in 1920’s; people panicked, pulled out their money, and then everything went downhill. If we aren’t educated about how markets work, we may make the same error again.
There are two terms that you may hear when looking at the stock market: bull markets and bear markets. A bull market is a market that is going up; a bear market is one that is coming down. Bulls and Bears came into stock market lingo in the 1800’s, and there is no certainty as to the origin. The most common explanation is that is based on the way each animal attacks; bears maul you and knock you to the ground, bulls charge into you and toss you in the air.
What other things would you like to know about the stock market? Is it something of interest to you, or is it something you just kind of ignore? Leave some thoughts in the comments, have a great day, and we’ll see you here next Tuesday on Money Walks.