The stock market is the greatest opportunity machine ever created.
The stock market, also called the share market, is the buy/sell market for stocks. Even though itâs called âstock marketâ, you can also trade other securities like ETFs, corporate bonds, derivatives based on stocks, commodities, currencies and bonds in the stock market. To buy stocks, you need a broker.
Understanding the Stock Market
The basis of the stock marketâs existence is the incentive for companies to acquire funding to execute their ideas and the incentive for individuals with money (called investors) to invest and benefit from the success of those companies.
As a company becomes more profitable, its stocks increase in value (demand). The reverse also happens.
The profitability of a company can fluctuate massively â due to material shortages, leadership changes, bad publicity, new regulations, etc.
The stock market is an example of something closely resembling a perfectly competitive market. Share prices are determined by supply and demand.
People buy shares through brokers.
https://www.youtube.com/watch?v=8QaP43sFO5A&ab_channel=Benjamin
The stock market is a complex adaptive system. Unlike in the context of maths and science, you canât predict how the overall system behaves just by knowing how each part of the system behave.
Things that affect the stock market
- When central banks raise or drop the interest rate.
History of the Stock Market
Macroeconomics
Macroeconomic events and variables have a huge effect on stock market performance.
Investing During High Inflation
A favourable company to invest in during inflationary periods has two properties:
- The freedom to jack up or fine-tune their prices without significantly dropping market share values. Eg. Apple, since they have a unique competitve advantage, can freely increase their prices without huge consequences to their share price. People generally wonât try to substitute away to other competitors.
- Low working capital. In other words, the company should be able to generate a lot of cash from little input and have a scalable business model. Eg. Meta can just increase ad frequency to generate more cash, while Ford would have to invest in new factories and equipment. Advice sourced from Warren Buffett.
Interest Rates
At lower interest rates, stock market prices will more easily rise (I think. Need a source and explanation for this).
At higher interest rates, itâs harder for stock prices to rise.