When a disaster hits, like the bombing of the WTC, why do people rush to dump their stocks? I have been reading the news reports and the stock market is staggering. Why do people, hundreds of miles away, dump stocks that actually have nothing to do with the World Trade Center and cause a market crash when if they simply held tight, the market would have remained strong and unaffected, which would have not only been better, but would have been a smack in the bombers faces?
They’re taking their money and running because they think that Civilization As We Know It is coming to an end.
Basically.
A good deal of the sell-off was in the airline and insurance industries, both of which were devastated by the attacks.
one word: overspeculation. analysts wouldn’t stop talking about how the market would be hit, thus consumers get out as fast as they can. airline stock was hit the worst because of this, probably because we all heard how much money they have lost in the past week. if you previously owned airline stock, you could’ve played it smart yesterday, and sold off everything first thing in the morning, and then bought it back late afternoon for a much cheaper price. then hold on to it for the next year or two, and it is bound to go up, people have to fly. i’m sure some people did this and are reaping the benefits.
the market was dropping before the attack, so its just continuing to do so. However, today, Tue, its on the way back up so far at this time, 750am PDT.
Please explain this to me. WHO actually buys this stock? What if no one wants it or knows the value will fall farther?
What is the actual purpose of buying and selling stock after the initial purchase, which I understand goes to the Company offering the stock. None of this money goes to the corporation after the initial offering so why do we have all these people buying and selling shares of a business? They are not producing goods or services, so what is the purpose of all of this?
Now they say you can borrow stock and then sell it and make millions? To me the stock market is another Vegas or Atlantic City. Can someone explain without confusing me further?
Don’t ask me. I only dabbled twice in the market over the years. Bought Kmart and sold it at a profit ---- after I got fired from one of their stores and shortly after it took a dump when Walmart hit the scene. Then I bought another stock that was going to split and lost my butt on it when they didn’t do so because of a mass of lawsuits. See, I bouht it at $6 a share. If it had spit, I’d have had twice as much at $6 a share meaning I would have doubled my money. A split means an increase in stock prices will probably come, so I might have been able to sell the stuff at 8 to 10 dollars a share and made a tidy bundle.
Instead I sold it at $6 and still lost because I had to pay a brokers fee.
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Now they say you can borrow stock and then sell it and make millions? To me the stock market is another Vegas or Atlantic City. Can someone explain without confusing me further? QUOTE]
It sounds silly when you put it that way doesn’t it? However, you are pretty much right on the money. When you buy an airlines stock you are buying a piece of paper from the owner that has name of “your” company on it with the number of “shares” that you are the proud owner of. It is kind of like one of those special edition collector’s plates that you see advertised on TV. Those are cool aren’t they? In this case though, you are hoping that your collector’s item with come back in style and you can sell it to another collector at a profit. Of course, none of this has a real relation to a real-world company. As you pointed out, they got their money when they unloaded the special edition piece of paper to the firsty sucker, um collector, at the IPO, took the cash and ran.
koufax, you’ll need to take Finance 101 to get a full answer to your questions, but I’ll try to give you a general overview.
The short answer to who is buying the stock is “other investors.” The investment market is comprised of hundreds of thousand of investors. Each one is trying to buy stock that they think is currently underpriced, so that at some point in the future, they can sell it someone else for a higher price.
In a “perfect” market i.e., one composed of purely rational investors with complete access to financial information, there would be little or no fluctuation in price, because everyone would have the same opinions about a stock’s performance. As was so vividly pointed out to us in the past week, we don’t live in a perfect world. Some investors have better information than other, while some operate very irrationally. So we have a mix of opinions as to the “true” value of a stock.
It’s pretty much a given that, in the long run, stock prices will always rise. Unless, of course, the company in question goes bankrupt, or some outside event impacts its business plans. Then many investors will decide, “Time to sell!” Fortunately, there are almost always other investors out there who will buy during this time, since they are assuming that the stock will one day recover, allowing them to make a return on their investment.
When this last part doesn’t happen, you have the kind of sell-off we say today. When it REALLY doesn’t happen, you have a stock market crash.
The money from the purchase of stock goes to the last holder of that stock. Much of the stock is still held by the issuing company, so the company does make some money off of it, even after the initial offering.
In theory you could borrow a lot of money, use it to invest in the market, and make a mint. The trick is to make sure that the return on your investment is greater than the interest you’ll be paying on the loan. Since no stock investment is a certainty, there is a certain amount of risk involved.
Good thing it didn’t split – you might have been disappointed. You would have had twice as much at $3 a share, not $6. Your next statement is basically true, however. The stock would probably have risen; had it risen back to $6, then you would have doubled your money.
Hopefully someone better-educated than me will cover this, but ALL of the money invested is available to the company, not just the IPO. That’s the point of being public – the more money people invest, the more capital you have to work with. If there were no trading market, companies would still pay dividends (most currently do), so people would still invest in them.
And Shagnasty, when you buy the stock, you do own the company. It’s just that if you don’t own enough of the stock, your vote is fairly insignificant.
our economy is weird. everything is on paper–money is in accounts not backed by anything, and partial ownership of companies is sold in the form of stocks (more paper). the majority of most successful people’s assets is on paper–it doesn’t really exist. hell, if bill gates wanted to cash out of the market and shut down, he would probably start his own little recession right there. if everyone in the country wanted to cash in their assets, it wouldn’t come close to being possible. and we call this the most stable financial market of the world? the scariest thing to me is, that statement is true.
This statement is not true. The only direct financial benefit to the company is through the IPO (initial public offering) or subsequent offerings of new stock. A simple example: A company decides it is going to incorporate (go public) and sell shares on the open market or an established corporation decides to issue some number of new shares. They enlist the services of an underwriting company which, for a fee, helps bring the stock offering to the market(s). Let’s say I buy X shares during the IPO or new offering. The money I pay, less underwriting fees, goes to the company which presumably uses the funds to grow. I now own Y% of the company (my X shares divided by the total number of shares outstanding ). I am now entitled to Y% of the profit generated by that corporation. This profit is paid, usually quarterly, as dividends. If I decide to sell some or all of my shares in that corporation the proceeds (less brokerage fees) go directly to me. The company gets nothing.
The company does, however, still have incentives to keep the stock price rising. A corporation’s value is, basically, #of shares outstanding X value of each share. The higher my stock price the higher my corporations value and, hence, the more difficult it is for someone else to buy controlling interest (50% of the outstanding shares plus one). Also, the better the stock performs the more people want to buy it. This may eventually allow me to offer new shares and get more money to grow the business. Having the shares in more hands also make it more difficult for someone else to buy control.
Hopefully, in the time between when I bought and when I sold, the company has grown and is making more profit. As a result, investors are willing to pay more for my shares than I did. I get the dividends I earned since I bought the stock plus the price difference in shares when I sell. Of course, it’s possible that the company never made a profit, I never got any dividends and other investors are not willing to pay as much as I did for the shares.
This answer is very simplified and generalized, but I think it covers the basics.
As to the OP, the simple answer is that the market hates nothing so much as uncertainty. The economy (and the markets) had been heading generally downward before the disaster and now no one is sure what is going to happen over the short term. I, for one, wish I had a ton of money to invest right now. I think we’re seeing a golden ‘buy’ opportunity.
Reiterate Doctor Johnson, markets HATE uncertainty, and there is a huge black hole of uncertainty out there. Will there be war, further wave of terrorist attacks, will relations with Russia, China, Muslim nations get better or worse, what will happen with the global economy, etc. etc.
On Monday, a record number of shares traded on the NYSE. This is really good news actually. Everyone that panicked and wanted to sell were able to. Despite the panic and uncertainty, a massive amount of people are confident to buy at the current level, which implies that they are optomistic on the long-run prospects for the market.
Anyone that buys shares is a shareholder. That is, a part owner in the company. As a part owner, one would expect to be rewarded if the company does well in the form of dividends and/or share price appreciation. This is very real world, as you do actually own part of IBM for example.
Short selling is a way to profit from the market falling (instead of rising) OR a way to hedge. While trying to keep this simple as possible, the easiest way to have a short position is to buy put options. Put options INCREASE in value when the price of the underlying stock DECREASES.
Various stock market regulators are looking into a giant increase in put option buying in insurance companies, airlines and brokerages in the days before the WTC. It is very possible that bin Laden through various shell companies bought put options so he could profit from the terrorist attack. Proving this may be difficult.
Anyway, hope that clears up a few questions. Oh yea, I used to work in the business.
But what if you tell your broker to sell the stock, and no one will buy it?
Why do I get the feeling that most of the stock market and people who work in it are not really doing anything in society but gambling? They are not producing products or a service, just playing with and manipulating paper.
Why in the world would you make money if a stock falls in value? That means the company is not doing well. So why would someone make money? Sounds like a bunch of hustlers who don’t want to work created all this BS to me. Remember derivatives that bankrupted Orange County CA? NO ONE could explain them. NO ONE!!! No one understood them. I am not joking.
Please someone tell me the stock market is good for America and not just for Merrill Lynch.
It’s not (good for America). And it’s not supposed to be. The stock market is an indicator, THE indicator, of the US economy.
It is the supply/demand curve of the economy. It reflects that. Buying stock out of some misguided ‘patriotism’ is stupid. Plain stupid.
The ‘market’ is never wrong. It is the market. It is the economy.
And making money off a falling stock is as American as apple pie. For example, if you were smart enough too know Amazon was shit, and over-valued, 18 months ago (as it was), you would’ve made a killing… isn’t making money off intelligence American?
Someone will buy it. They just won’t pay you very much. If you bought stock at $10 a share, and something majorly crappy happens, and nobody will pay you more than 1 cent a share, you have just lost a lot of money.
Spoken like a true Marxist. But it is the American way, and doesn’t seem to be harming anyone, so I’m okay with it.
You can borrow a bunch of shares of a stock from someone who already owns them with the promise to give them back later. Then, you sell them off right away. Later, when you’re supposed to give the stocks back, you buy them at the current price and hand them over. If the price went down, you’ve made money. If the price went up, you’ve lost money. If the price went way up, you’re totally pooch-screwed.
I hope you are joking and not being a jerk. I did derivatives for 8 years. Orange County was real simple, Bob Citron, the Orange Country treasurer made a huge bet that interest rates would FALL. Unfortunately, interest rates went UP a lot. He lost the bet and USD1.6 billion.
Let’s put this in terms that maybe make more sense, you make a big bet that the Giants were going to beat the Ravens in the last Super Bowl. You also borrowed a lot of money from your credit card so you could make it a huge bet. You put your car and house up as collateral so you could make really huge bet. You borrowed money from all of your relatives to make an enormous bet. You lost. Understand now?
I wasnt being a jerk. I saw a show (60 minutes I believe) and they interviewed high powered , knowledgeable money managers who were offered derivatives and they were saying they simply didn’t understand them. So they passed on them and Citron bit and ended up in jail.
The more people try to explain this the less I understand.
I understand an IPO. And then being able to sell that stock or buy some more. I understand the company uses that IPO to expand. I understand if the company does well, the stock is more valuable.
I don’t understand a whole industry of people buying and selling these stocks among themselves and watching a ticker tape at the bottom of the screen. And then making money on an unprofitable business. And if these stocks are so good, why don’t the stockbrokers grab them all up?
I mean really, isn’t a stock a long term investment and it has all been turned into another Las Vegas with people buying and selling to make quick profits instead of…actual production or service?
More questions. Why WAS Amazon valued so high? Who was the GENIUS who thought it and all those other dot.coms were so valuable? And why would all the venture capital people give money to those unproven ventures? they are supposed to be experts. And how much do stockbrokers make and how do you become one? Education?
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*Originally posted by koufax *
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I saw a show (60 minutes I believe) and they interviewed high powered , knowledgeable money managers who were offered derivatives and they were saying they simply didn’t understand them. **
Then by definition, those people were not high powered, knowledgeable money managers.
Trying to keep this simple. Stock broking is a service industry. It’s kind of like being a Trekkie, as in Star Trek. After the first TV shows, there was Star Trek stuff/memorabilia that people collected. Before the internet age (if you’re old enough to remember way back then), there would be Star Trek conventions. At those conventions, a lot of Trekkies would buy, sell and trade the memorabilia. That is like a stock market, except a stock market is open every business day of the year rather than once or twice.
But there is only so much original memorabilia. Then the Star Trek movies started coming out. So, there is new memorabilia. You can think of this new memorabilia as an IPO. Suddenly you could choose between the original series and the movie. Then another movie came out with more memorabilia, just like another IPO. Then Star Trek the Next Generation was yet another IPO.
Then there were new ways to buy/sell/trade Star Tred stuff. Conventions, mail order, websites, ebay. Now, it’s a lot more efficient, you no longer have to be face to face to trade your Star Trek stuff. You can pretty much trade stuff anytime you want. It’s a type of market, as in stock market. The people that trade the memorabilia are providing a service.
What is that memorabilia worth? It’s worth exactly what someone will pay to buy it. You can look at all sorts of factors such as is it original, how many items were produced, what did someone pay for it elsewhere, is it autographed by Spock or by Sulu, etc. Now, in the stock market, you can analyze the company you want to buy in many different ways such as earnings, growth or profitability. Based partly on these things, you can decide what the company is worth to you.
Hope this gives you some idea of how stock markets work and the service they provide.