What's a Market?
An introduction into stock markets
The stock market is a cross between an insurance company and a casino. It's an insurance company because a business entity has offered shares of itself in exchange for capital with which to grow the business. A share represents ownership in the business, which directly implies sharing in the success or failure of such a business. By issuing public shares in the company the original business owners have spread the risk, while acquiring capital that will enable the company to grow faster or compete more ably in its market.
Shares of a publicly traded company are generally fairly easy to buy and sell. The price of a share is generally based on the perceived risk and reward prospects for the business. But here is where the casino resemblance comes into play. Historically, securities markets have seen rapid price swings which offer great potential rewards for a person who can anticipate the swings. A buyer or seller who expects a rapid price change will buy not based on the business prospects, but on expectations of such a swing. Thus, the bets are placed on expectations of the securities price action, and such expectations tend to be strongly based on human psychology. The typical gambling mentality plays an obvious role here.
Why should you care what a stock or securities market is? Because most people want to acquire greater financial assets in order to have more things or be able to do what they want more often. And if you ever plan to retire, you can't count on social security as your primary source of income, and some of us can't count on social security to be there at all.
How can a stock or securities market help you to acquire greater financial assets? Over time, most measures of the stock market significantly outperform interest-bearing accounts, so one can reasonably hope to acquire more money faster by putting some of it in the stock market than if one put everything in interest-bearing accounts.
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