The stock market plays a significant role in the health of the economy. The economy has to be strong for its country and its citizens to prosper. The stock market appears in the news every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like "The Dow Jones Industrial Average rose 2 percent today, or the more familar statement of " Aaj Bazar 200 point oopar, with advances leading declines by a margin of ..." Obviously, stocks and the stock market are important, but you may find that you know very little about them. What is a stock? What is a stock market? Where does the stock market come from to begin with, and why do people want to buy and sell it? If you have any questions like these, read on......
In the financial 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. 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 " Dalal Street" the main street in Mumbai where BSE is located or they 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.
If a company wants to grow--maybe build more factories, hire more people, or develop new products--it needs money. It could get a loan 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 stock. A business owned by one person (a proprietorship) 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.
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. Stockholders hope the company will earn money as it grows. If a company earns money, the stockholders share the profits. Over time, people usually earn more owning stock than leaving money in the bank, buying bonds, or making other investments. The terms "up" and "down" are used to describe the rise and fall of the market as a whole.
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.
Bears are cautious animals who don't like to move too fast. Bulls are bold animals who might charge right ahead. An investor is said to be "bearish" if he or she believes the stock market will go down. A "bearish" investor will buy stock cautiously. A "bullish" investor believes the market will go up. He or she will charge ahead and put money into the market. An investor can be bearish or bullish about a particular kind of stock. Likewise, the term "bear market" describes a time when stock prices have been falling on the whole. A "bull market" is a period when stock prices are generally rising.
I have learned a lot from the stock market. I have also learned a lot from being in Economics. When I get older, I will be able to use this information to make money. Economics is a huge part of life.
Winston Dsouza
MBS - Rocks!!
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