An Introduction to the Stock Market
“The stock market is filled with individuals who know the price of everything, but know the value of nothing” – Phillip Fisher
The earliest known history of the stock market dates back to the 1500’s. Much has been said on the how and when it all began, but the stock markets as we see in existence now dates back to 1600’s Amsterdam where the first stock exchange began. The Dutch East India Company played a prominent part as the first publicly-traded company to raise funds and pay dividend to shareholders. A flurry of trades started with many investing in stocks without much investigation which then led to the first crash in 1720.
The New York Stock Exchange (NYSE) is the largest stock exchange in the world, closely followed by the London Stock Exchange and the Tokyo Stock Exchange.
A Stock market is a collection of markets and exchanges where securities are bought and sold. It is a place for the purchase and sale of stocks, commodities and bonds of listed companies. It is a physical/digital place where investors can utilise to buy or sell shares of listed companies. It is a medium that brings together investors with government and corporations. The prices of these stock are governed by the forces of demand and supply. A stock exchange operates as a profit institute and charges a fee for their services. A stock is a fractional ownership in a company. An efficient stock market is an indication of the fluidity of the economy.
Why invest in the stock market?
It works more or less in the same way as an auction house. They serve as a mechanism for raising capital and investment avenues. Investing in stock is one of the best wealth-building mechanisms. It is the most realistic way to achieve one’s financial goals. The following are some of the reasons why one should invest in the stock market.
1. It helps money grow to counter inflation
2. It works on the power of compounding
3. It grows exponentially than other investments
4. It is an easy medium of investment
5. It helps create a diversified financial portfolio and mitigate risk
6. It helps one earn dividends
How do traders make money?
The bait of quick money is the most attractive element of the stock market. It is very important to identify whether you are an investor or a speculator before you begin your brush with the stock market. Traders make money in the stock market by making trading strategies that move with the market advances or decline. They profit from a market with positive swings or falling swings by making buy and short orders.
While all this holds good about investing in the stock market, one should also not lose focus of the fact that we should never time the stock market or let our emotions run amok. We should always have a disciplined approach to investing and have realistic goals. The best advice would be to never have a herd mentality.
“One needs to be fearful when others are greedy and greedy when others are fearful” – Warren Buffet
Authors – Benila Jacob, Mark John