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stock market

I don't know much about the stock market...only what I have heard. I guess if I was not so lazy, I probably could look up in a second the answer to my first question here...versus taking 2 minutes or longer to ask you folks. laugh But, here it goes anyway. What moves the stock market...the value of it? Also, I wonder what would happen if the stock market took quick drop from the 30,000 mark...oh...let's say to the 8,000 mark. dunno

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Comments (58)

Sir_T
Tale this with a grain of salt as I am not an expert in this stuff so something I say here will probably be wrong.

The theory of the stock market is that if a company is doing well it will give out good money to its shareholders. Having a share of a company meane that you will get a certain amount of the companies profits every year. that is called a dividend.

In theory, having a share with a dividend of a profitable company means that it is more desirable. And when lore people want something, the Price of it will go up. When more people want to buy a share its price goes up, and when more people want to sell, the price goes down.

The DOW is basically the share price ratings of the top 100 companies on the stock market. So if everyone but the top 100 companies were losing money and falling apart, the rating would still go up.

That's the basic theory. Now reality. There are shared that are mow worth 100 times their Dividend, so obviously people are not buying those for the money they are getting out of the company profits. Hell Companies issue shares that have no dividend. Shares now change hands with the expectation that the share will rise in value and so that they can be sold on again. Shares are traded based on emotion rather than economic sense. Plus the Trumpian "qualitative easing" means that the Goverment will cover your losses so please make the stock market go up more!

This means that nowadays the stock goes up if you feel it should and down if you don't. So, hello Social Media manipulation.

There are also Derivatives. A derivative is a financial contract that derives its value from an underlying asset. The buyer agrees to purchase the asset on a specific date at a specific price. Essentially the Buyer is better that buying the asset at that price will render him a Profit. Thats the basics, but based on that is a dissying and complex series of Bets and selling derivatives and so on that I'm not going to try and explain.

Another thing to note about the stock market these days is that its largely automated with computers running programs and buying and selling shares in ways that will guarantee a profit. These computers actually scan social media for any tiny trends for stocks to buy and sell later at a profit, and are capable of sending out tweets to try and Pump or deflate stocks. SO the Stock market is warring with itself for pennies.

Thats why the Stock market can go up when half of America is laid off, becasue the computers don't give a crap, all they care about are shares in the market and what they have been told to look at. And if the Top 100 companies are still pumping out positive news the stock rating goes up regardless.

That's kind of the basics of the thing. I probably misstyped or got something wrong but that's the best way I can put it.
Well consider yourself told Johnny by the resident know it all
Sir_T
*shrug* Feel free to point out any errors or help him out yourself, hunnybun.
Dongg
What drives the stock market is profit motive. Everyone has a profit motive. That's what drives the entire economy. Everyone wants to make more money.

Investors invest in stocks hoping to get profitable returns on their investments. It's a similar motive as taking a new job hoping to make more money or putting money in a bank that pays more interest. Hundreds of millions of people, organizations, pension and retirement funds and companies own stocks in US companies.

What happens if the DOW index falls to 8,000? Some people will lose a lot of money and others will make a lot of money. That's what always happens when the market falls. In the past history of the stock market, those people who held onto their stocks through such declines were generally rewarded by their stocks again rising even higher than they were before. You should not invest in stocks if you cannot hold on through the dips. Stocks have always provided excellent returns for those who held them for a relatively long term.

The general rule in investing is that more risk comes with POTENTIALLY more return. Of course since there is more risk that means that more return is not GUARANTEED.

With bank account and bond rates near zero you can make a case that in the current economic and government fiscal environment it is more risky NOT to have some stocks in your portfolio than to have them.
If it drops to 8000 fast, stock up on lots of water and food. Hide out with lots of guns and ammo, you better not come outside for several years.
Dongg
Nahhh... the most important understanding I had in my investment career, the one that made me wealthy was that if you cannot receive good returns investing in the US stock market over the long run, your money isn't safe anywhere. I've always made a lot of money buying US stocks when everyone else was panicking and selling. If the DOW dropped to 8,000 that would probably be the best buying opportunity in the history of the stock markets. I would put my last dollar into it.
Dongg
Little bit of the basic mechanics for JS.

Companies sell stock to raise money to use in their businesses. After they sell them, the stocks continue trading on the "secondary market" where one investor can sell them to another investor. When you buy stocks in the secondary market, the original company doesn't get any of the money.

The stock market and individual stocks are in general a forward looking indicator. In general the price of a stock is driven by the future OUTLOOK for the underlying company to make profits. The more profitable the outlook for tomorrow, the higher the stock price today.

But sometimes, such as is the case with the company GameStop, which is probably the news that provoked your question, the price is not driven by the potential for future profits, but by artificial factors. When that happens it is more like gambling than investing. The people who played the game of buying and selling that stock were gambling and the price was not based on any fundamentally sound measures of the company's profit potential. I don't advise getting involved with that kind of stock unless you are a sophisticated investor who understands the risks and mechanisms of the game.
Dongg
Tale this with a grain of salt as I am not an expert in this stuff so something I say here will probably be wrong.

Stick to your day job. About 80% of what you wrote is wrong.
Sir_T
Doesn't stop you from writing stuff. rolling on the floor laughing

I know, I know, I'm Fat too. hug heart beating
... "the most important understanding I had in my investment career, the one that made me wealthy was that if you cannot receive good returns investing in the US stock market over the long run, your money isn't safe anywhere. I've always made a lot of money buying US stocks when everyone else was panicking and selling. If the DOW dropped to 8,000 that would probably be the best buying opportunity in the history of the stock markets. I would put my last dollar into it."

A dollar is probably all you have to put in it anyway! rolling on the floor laughing
edison324
dnogg ,,,is so wealthy he is on here tapping the keys ,,,good investors keep stum,,,
From 1964 to 1983 the Dow went down year after year with out stopping for 19 years. That's about half of a persons working life!!!!
Dongg
From 1964 to 1983 the Dow went down year after year with out stopping for 19 years. That's about half of a persons working life!!!!

Completely false.

Here is a chart of the DOW from 1964-1983. The green indicates that the DOW was up that year, the red indicates it was down. The top line is a 40% increase. There were 13 years when the DOW was up and only 7 when it was down for the year in that period including 1975 when it was up almost 40% in a single year.

Embedded image from another site
shrug* Feel free to point out any errors or help him out yourself, hunnybun

wat , you want me to read all that T ?????????????
What drives the stock market is greed.
It is SPECULATION that a company will do better.
There's an old saying, "buy on the rumor and sell on the news".
So, rumors of future profits can lead to an increase in stock price and news of good earnings
can actually cause the stock price to fall, especially if those earnings are less than expected.
It's sort of counterintuitive, but that is the reality of the market.

Dongg is actually right about something for a change (definitely not politics).
Big crashes in the market CAN BE big opportunities.
As an example the week that OS2 was released by IBM, Microsoft crashed.
That was the week I bought up a lot of Microsoft and was well rewarded the following week
when the Microsoft price recovered. People overreacted to IBM's operating system release.
They wrongly felt it was the end of Microsoft.

In general the market can have ups & downs. Some people day trade daily.
However, the smart way for the average person to invest in the market is in quality mutual funds and hold on long term. That way individual stock performance is less of a concern.

For instance, here is the performance of the Dow Jones Industrial average over 10 years.
If you invested in it 2009 and sold in 2019, you would have about tripled your investment.
The stock market has ups & downs, but in general the market goes up long term.

Embedded image from another site
Dongg
Greed no more defines the stock market than it defines the 160 million people who work in America. Those greedy bastard workers who expect to be paid! What an outrage!
Dongg
It is SPECULATION that a company will do better.

Going to work is speculation that you will receive a paycheck.
Hopes and fears and fresh virgin land for the rape.
Sir_T
Not necessarily. There is the "help him yourself" part. If you are too fukken lazy to read and write, that might be a clue why you are mistaken about some things.

I at least made an effort. Come to bed?
Work is an agreement, an exchange of money for time & effort. One EXPECTS to get paid for the work performed, as per the agreement before going to work.
One does not expect to lose money by going to work.
On the other hand losing money is quite possible and common in the stock market.
One is essentially speculating, that the stock chosen will rise in price, not only above the bought price, but also enough to cover fees, taxes, other investments, and to make it worthwhile. It is money for future money. It is purely an investment. It's saying I am not satisfied with the money I have. I want more of it, and rather than work for it, or produce something useful for it, I want it to make me more of it for me.
People save money surplus to their living needs. Ordinary people will accumulate savings and invest them, spreading risk by diversifying. Some of their savings will be held in cash, in term deposits (which have negligible return in recent years), in business, in property (needing large buy-in capital), or in ordinary stock. Ordinary stock generates fairly reliable dividend income and less reliable growth potential. Investors partake in successful companies by investing in their stock. Companies use cash from sale of their shares to fund capital projects. In this, the stock-market functions well. The rational market looks at the fundamentals of a company and makes judgements on their performance, and rationality normally controls the market very well.

But of course there are gamblers who are not interested in investment, but in profit that can be made from fluctuations. Derivatives are intended to provide a means of limiting costs over time, as insurance for example against a sudden rise or fall in a commodity price when the business is committed to buying or selling that commodity. Derivatives are normally not investments at all but a form of risk management.

Some stock simply defy rational explanation. Look at the earnings to share ratio for TESLA for example. Look at the Gamestop farce just recently. Half the punters are grinning broadly and half are serious losers. Yet if you take a serious intelligent conservative investor's view of the market, combining income and growth, you should be able to at least match the market.

Working in the investment/stock market industry as I did for almost 30 years, I was always constrained by compliance requirements, and so only my superannuation went into the market, apart from an occasional medical technology IPO. Still the ASX took a 40% hit in 2007-08 and with it my Super fell 35%, but except for shrugging, what can you do? Take it on the chin. The ASX XJO by the way is currently at 6880, slightly lower than its peak in 2007!
Dongg•20 hrs ago•Wainscott, New York USA
From 1964 to 1983 the Dow went down year after year with out stopping for 19 years. That's about half of a persons working life!!!!

Completely false.

Here is a chart of the DOW from 1964-1983. The green indicates that the DOW was up that year, the red indicates it was down. The top line is a 40% increase. There were 13 years when the DOW was up and only 7 when it was down for the year in that period including 1975 when it was up almost 40% in a single year


1965- DOW was at 7,600 apprx.
1982 - DOW was at 2,500 apprx.

the decline was slow and continuous for 17 years. The cliche I'm in it for the long run was a death wish.
You might get lucky and make money one year if you put in and pull out just right but your claim of buying low and selling high is pure gambling, nothing else, ridiculous.
Stocks are high now and forming a bubble. When will it burst? dunno
edison324
why play the stock market , when there countries paying really high interest rates, when i bought my apartment in turkey ,the interest rate in my local bank was paying 18 percent interest on a high interest savings account , and even today these accounts are paying 9 per cent interest ,,yes you need a address to open the account and a minimum of 20.000 pounds or dollars to get those rates ,
e - Because in the USA the highest interest rate from a bank you will get will be 2%
and that's from an online bank. More commonly it's 1% or less.
The inflation rate for 2020 was 2.7% (thanks to Trump's trade wars). Thus, keeping money in a bank in the USA loses you money, especially if you compare it to the stock market.
Wow, FFF seems to get the concept of enough. Might be a bigger stretch for her to get the idea of being grateful. Still, progress is progress, if not constitutionally of the fake sort. VERY fake.
If the market indices were to drop by say 40%, on average, I'd jump back in from cash right away. And after a recovery of 10 to 20 % to previous overbought levels, I'd run away with my tail tucked between my legs. As I've done before. So as to respect my gratitude and fears, rather than the greed in all of us.
Even though with my cheap guy-self sufficient lifestyle, I really think any more gains these days, with near negative interest rates and low inflation, are truly superfluous. You heard it here first.
When you make money gambling you think "how smart I am" and when you lose it you either keep a secret orcall the "other" a crook.rolling on the floor laughing

If the market drops 40% quickly,theres a very grave, even fatal reason for it. No one has a crystal ball.
Johnny_Sparton
Somebody reminded me the other day. It used to be where if the stock market was up, gold was down....or vice versa. Now, we have both up. confused
Johnny_Sparton
By the way, thanks everyone. I have enjoyed reading your posts. I have just not had enough time to give a deep analysis of them yet.

Is it also true that the stock market is being controlled by some sort of entity?
Dongg
Somebody reminded me the other day. It used to be where if the stock market was up, gold was down....or vice versa. Now, we have both up.

This is a controversial topic. The popular lore says that gold is inversely correlated to the stock markets which is a fancy way of saying that when the stocks are up gold is down and visa versa. But the best studies on this issue show that there is almost no correlation at all between stocks and gold over long periods. So that's why you observe periods like the current one when both are up at the same time.
Dongg
Is it also true that the stock market is being controlled by some sort of entity?

Depends on what you mean by "controlled."

If you mean is it regulated, then the answer is yes. In all countries that have stock markets they are regulated by their respective governments.

If you mean is there some master puppeteer in the sky pulling the strings that control the prices of individual stocks the answer is no. Prices are largely determined by the principle of supply and demand based on millions of individual investors who buy or sell stocks.
Dongg
If the market drops 40% quickly,theres a very grave, even fatal reason for it.

So?

Where else are you going to put your money if that happens? Socialist Venezuelan bolívars? with a 500,000% inflation rate where you need to double your money every 4 seconds just to keep up with it?

It doesn't matter how far down the American stock indices fall, the only thing that matters is how it compares with other investments. It's only the RELATIVE performance that matters. And as all of the history of the US stock markets has demonstrated, there is no better investment in the long run that the US stock markets. It doesn't matter if they are up or down. They have always been the best place to invest for the long term.

The only investment that is worse than investing in the US stock market is all the other ones.
Johnny_Sparton
Thx Sir T...that might explain how both gold and the stock market is up at the same time. In my opinion, it seems like the traditional ways that stock market moved (through direct company performance) is not quite what it used to be.

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Johnny_Sparton
Thx EP. wave
Johnny_Sparton
Dong, if I remember right, a professor of mine once told our class, since the start of the stock market, it has increased in average value of 10% each year...and that includes the years during the Great Depression. That was about 20 years ago though.

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Johnny_Sparton
Raph, I agree with you...if it drops fast. I remember a year or so before Trump was elected, when the stock market was at around 16,000. I invested in some mutual funds. At that time, the broker I was speaking to was talking to me about how many of the brokers he was speaking to were expecting a correction at that time. hmmm Now we are over 30K. Unemployment pretty high....the middle class shrinking...people hungry...confused

I will say though....you want to talk about perfect timing with the internet tax that most states have enacted.

...anyway


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Johnny_Sparton
Dong...you are right,, Gamestop is what prompted this blog. But, the stock market has been bewildering me for some years now. I dumped all my mutual funds when the market hit 20K. I thought that was an insane high. Boy was I wrong.


Some people say that the elite rich are the ones that are really reaping the benefits now. Afterall, what middle class person can afford to buy stocks at these prices? I heard they sell fractional stock now.
Johnny_Sparton
Thanks Jim.

I will just say again, I don't think this is the stock market I used to somewhat know about 8 or so years ago. I appreciate your information. Thank you.

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Johnny_Sparton
Hello Chesney,

With all the unemployment and all...the plundering might be coming to an end. dunno


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