There are a couple of questions that an investor or any other market participant
should ask himself before he invests in the stock market.
1. What is the stock market?
2. What is price? (especially if the stock has NO dividend)
3. What DIRECTLY causes a stock price go up or down?
4. Where does the money come from when a person makes money on a stock, and
Where does the money come from when a person loses money on a stock?
answers:
1. The stock market is a group of buyers, sellers, and market participants on the
sidelines.
2. Price is the temporary consensus amongst buyers, sellers, and market participants
on the sidelines. Buyers and sellers are compelled to act because they are
afaid that someone on the sidelines will step in and take away an opportunity.
3. Price increases are DIRECTLY caused by bulls who become more greedy and are willing
to pay more and short-sellers who are scared and want to close out their positions.
One might say, for example that stock prices represent a discounting of the future earnings of a
company. They would argue that a stock goes up when the earnings of a company are growing
which causes the stock to go up. This is coufusing the perceptions or
beliefs of a market participant that induce him to act in a certain way with
the actual reason why a stock may go up. There are other market participants, such as
mutual fund managers, who purchase Google because the funds they are running are not
invested in Google, and are underperforming other comparable funds. Or there might
be hedge funds that are buying Google based on some complex statistical analysis of
market technicals and the market psycology of institutional investors. Or it may be
a retail investor that is buying Google because the stock is receiving a lot of
attention and the stock is going up.
4. When you make money in the markets, you are taking money away from other
market participants. That other particpant can range from a hedge fund that
is making super-leveraged bets on Google, or a retail investor trying to build
a nest egg for retirement. The same principle works when one loses money in the
markets.
Slashdot Mirror
There are a couple of questions that an investor or any other market participant should ask himself before he invests in the stock market.
1. What is the stock market?
2. What is price? (especially if the stock has NO dividend)
3. What DIRECTLY causes a stock price go up or down?
4. Where does the money come from when a person makes money on a stock, and Where does the money come from when a person loses money on a stock?
answers:
1. The stock market is a group of buyers, sellers, and market participants on the sidelines.
2. Price is the temporary consensus amongst buyers, sellers, and market participants on the sidelines. Buyers and sellers are compelled to act because they are afaid that someone on the sidelines will step in and take away an opportunity.
3. Price increases are DIRECTLY caused by bulls who become more greedy and are willing to pay more and short-sellers who are scared and want to close out their positions. One might say, for example that stock prices represent a discounting of the future earnings of a company. They would argue that a stock goes up when the earnings of a company are growing which causes the stock to go up. This is coufusing the perceptions or beliefs of a market participant that induce him to act in a certain way with the actual reason why a stock may go up. There are other market participants, such as mutual fund managers, who purchase Google because the funds they are running are not invested in Google, and are underperforming other comparable funds. Or there might be hedge funds that are buying Google based on some complex statistical analysis of market technicals and the market psycology of institutional investors. Or it may be a retail investor that is buying Google because the stock is receiving a lot of attention and the stock is going up.
4. When you make money in the markets, you are taking money away from other market participants. That other particpant can range from a hedge fund that is making super-leveraged bets on Google, or a retail investor trying to build a nest egg for retirement. The same principle works when one loses money in the markets.