The Stock Market.

Week 14

The A B C of the Stock

Opening a business is always a charm.
Market.
The idea of opening and working for your self

is quite

appealing for some.

The issue is to get the right mix of funds.
Private Equity and Venture Capital Firms can and do help but
the question is can they give enough?
So personally it raises funds but virtually gives you the
amount of people who think alike and are willing to work
mutually for a beneficial goal.
For the investor, the advantage of owning or being part of a
story which if turns out to be bust, leaves only the portion
invested as gone. However, if goes to a boom then the
advantage is being on the bandwagon as a first comer.

The basics contd

Advantages:
It is a good and large pool of funds for businesses.
It can be highly lucrative for the investors.
However can be quite volatile.
Gives part ownership.
For corporations / businesses it tells them their market worth,
and whether what they do is acceptable.
Is considered to be the barometer for the economy.
Can be considered as a good way to keep a check on
information on various clients operating in various segments
of the economy.
Opens up a channel to get investments from the foreign
player in the market
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The Equity Market.

Provides part ownership in an entity. The investor

become part owner by investing in the equity of a
business.
That is why it is also called as the Equity market.
The beauty is, his ownership makes him / her limited to
the value invested.
This way the personal assets are protected and cannot
be touched limited liability.
The downside is the investor has no or little say in the
actual workings of the entity. This way the system
differentiates the management from the equity owners,
while maintaining that the entity is a separate legal entity
or a separate legal person.
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Common Vs Preferred
Common stock is a larger category and the actual owners who elect the
board of directors, who elect the top management.
Stock.

They are eligible to vote.

Preferred stock do not vote.
Preferred stock get a fixed percentage of dividends which is preset when
the issue was launched. So the profit potential is limited yet guaranteed.
The common stock owners get fluctuating dividends (depends on how
much the entity made the profit). They may get nothing or max. get a
good return in form of annual or regular income.
Preferred stocks gets the dividend first; then do the common stock
owners.
Both are residual owners, however the preferred stock has a better
hierarchy.
Value of the common and preferred stock cumulatively makes the Market
Capitalization of an entity.

How and Where to buy

Public limited unquoted are not traded in the stock market. Yet they
Stocks.
have the proceedings/ disclosures / applicability of laws which are for

public limited entities.

Public limited quoted are quoted on a stock exchange.
Private firms do not issue stocks or if they do these are not to a
large number of people. Certainly then the market for these stocks is
not present or very limited.
Stock market a place physically present or otherwise a platform
which provides a forum for buying and selling of stock which is
publicly listed on it.
Stock Brokers the dealers who comprise of the intermediaries who
support in the buying / selling process. They usually earn through
commissions. They used to provide advise on what to buy or when to
sell, however this function has recently been reduced because the
electronic market is bigger and that information is now widely
available for investors to make their own decisions.
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Some Stock Market

Terminologies.

Mutual Stock a stock which is an instrument in itself

however has invested in a lot of different stocks.

Depository Receipts receipts of shares of stock held in
a foreign country. This supports by increasing the market
and becoming part owners of entities not listed in the
stock exchange of the country.
Operating in a foreign market through foreign stock
brokerage accounts.
Selling Short borrowing securities and selling them
when investor feels the price is to fall. It is then bought
back and returned at the lower price.
Going Long doing the opposite.
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Performance of a Stock
Market Index averages of the stock prices taken in the
Exchange.
basket.

Industry Index averages of stock prices in a particular

industry.
Dividend Index - averages of stock prices where the
perception is that these give regular dividends.
Inflation Index averages where the market perception
is that stocks are basic items which do not fluctuate
significantly with the economic conditions.
Base year Initial year where the index is started. This is
set at usually 100 or 1,000 depending on the size and
scope of the market being watched / assessed.

Terminologies Contd

Bull market when the index shows significant increase

of about 20% or higher.
Bear market when decline is noted of at least 20%.
Flat market when the period shows that there has been
no major change for quite some time.
Speculator taking positions without adequate
information as to the basic or fundamentals.
Technical investor taking positions based on how the
index has moved rather than on basics or fundamentals.
A Fundamental or basic investors obtains information
and acts on it.

Does the Stock Market reflect the

Economy?
The stock market is considered to be an important

source of funds for expansion. Directly through IPOs or

secondary issues; indirectly by giving a direction as to
the market perception of the stock.
It makes up a significant portion of household wealth.
More importantly it affects market perception. This then
provides a basis on how the players and investors will
react which will again affect the market. This is a vicious
or virtuous cycle, depending on the perception and gives
basis to the popular self fulfilling prophecy concept most
commonly given by stock market investors.

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