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chound
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I never really understood the stock exchange. Can anyone explain it to me in detail
chound said:How do i buy shares or sell them?
chound said:What is IPO?
Initial Public Offering (IPO): The sale or distribution of a stock of a portfolio company to the public for the first time.
It is a game of skill. Long-term, say if you wait at most 5 years, the price will reflect how much money the company earns and the potential for future earnings. You will receive part of those earnings, if any, in the form of cash each year (dividends). Short-term, the price will sometimes depend on mass psychology, sometimes be purely random.chound said:Is making money in stock exchange a gamble?
I'm a little surprised to hear that coming from you. I has been well documented that a monkey or a dartboard can turn a profit in the stock market over the long term. While it is certainly true that daytrading (hardly worthy of the term "investing") is a game of skill, long term investing, while still a gamble, is a low risk/high yield gamble.Aquamarine said:That said, the stock market is probably the hardest game on the planet. Many of the smartest people in the world spend all or part of their time in predicting stock prices. It probably easier to make money in any other way.
Regarding the return on the stock market in average long-term, is much less. Which should be obvious when considering how big the GDP long-term growth numbers are.russ_watters said:I'm a little surprised to hear that coming from you. I has been well documented that a monkey or a dartboard can turn a profit in the stock market over the long term. While it is certainly true that daytrading (hardly worthy of the term "investing") is a game of skill, long term investing, while still a gamble, is a low risk/high yield gamble.
The reason for this is that the stock market is a gamble with a positive return. While a casino takes 5-10 cents from every dollar in play all the time, the stock market gives an average of 12 cents per dollar per year (not inflation adjusted). That means that pretty much as long as you aren't stupid or impulsive (same diff), you will turn a profit from a long-term investment. The way to do that is through wide diversification (such as an S&P index fund), periodic (monthly), and long-term (>15 years) investments.
chound said:I never really understood the stock exchange. Can anyone explain it to me in detail
It really is true that in some games, a little knowledge can get in the way of common sense and cause you to over-think things.pansessualismo said:Some experiments say that women with no experience score better than a bunch of professionals...
Maybe kwowledge isn't relevant in the world of stock exchange...
Are you talking about my 12% figure? My comments are specific to the US, and the graph in fig 1 of your link actual says about 14%. And since I'm an optomist and consider the US economy to be continually evolving, I think that's a good reason to expect large failures such as the great depression will not be repeated, making the future brighter than the past.Aquamarine said:Regarding the return on the stock market in average long-term, is much less. Which should be obvious when considering how big the GDP long-term growth numbers are.
That's true (depending on what you mean by "most people"), and my point was that the most successful non-professional investors are the ones who completely remove psychology from the game. Or, rather, pick a game where psychology is not an issue: such as a 401K or IRA. The point of the dartboard and monkey examples is the dartboard and monkey are not burdened by overthinking or psychology and thus as long as the groundrules are set up correctly, they can (and do) make money.And unfortunately, most people will lose even this small return. Meaning that most peope will be much more stupid than the monkey regarding stocks (or index funds). Most will buy near the top due psychological reasons. Man is a social animal who likes to travel in flocks. And those buying at the top will wait a long, long time for break-even. For example, those who bought an index fund in Japan 1980 have only seen losses for 25 years. Even before inflation.
You are looking at the return during the decade of the greatest bull market in world history.russ_watters said:Are you talking about my 12% figure? My comments are specific to the US, and the graph in fig 1 of your link actual says about 14%. And since I'm an optomist and consider the US economy to be continually evolving, I think that's a good reason to expect large failures such as the great depression will not be repeated, making the future brighter than the past. That's true (depending on what you mean by "most people"), and my point was that the most successful non-professional investors are the ones who completely remove psychology from the game. Or, rather, pick a game where psychology is not an issue: such as a 401K or IRA. The point of the dartboard and monkey examples is the dartboard and monkey are not burdened by overthinking or psychology and thus as long as the groundrules are set up correctly, they can (and do) make money.
My bad, I was looking at the wrong bar - the bar for 1900-2001 is at about 6% (I thought 14% seemed high...). But I'm pretty sure that's inflation adjusted. The author says his numbers are about 1.5% lower than what most sources report: I have often heard that the inflation adjusted return is ~8%. In any case, the 12% I used was not inflation adjusted. We're just talking about two different things.Aquamarine said:You are looking at the return during the decade of the greatest bull market in world history.
That's true only if you buy once, such as in your previous example:I agree that index funds are better if you are not a professional. But, you must still time the market to some degree, for example by looking at the p/e number for the market as a whole.
That's not how an IRA or 401K works. What if you bought the same dollar (yen) quantity of stock every year (or every month) of that 25 years?For example, those who bought an index fund in Japan 1980 have only seen losses for 25 years. Even before inflation.
From 1926 to the beginning of 2001, according to Ibotson Associates... the total compounded annual rate of return that you would have had from buying risk-free US T-bills was 3.8%; the return from slightly riskier corporate bonds would have been 5.7%; the return from blue-chip stocks would have been 11%; and the return from the stocks of small companies would have been 12.4%, although there is some controversy over the way the small stock figures are arrived at...
To make sure there is no misunderstanding here, I'm not saying you can beat an index (in fact, I'm saying you should use an index fund). I'm simply saying that you can turn a profit relatively easily.Nereid said:Plot the distribution of those who 'beat the index' ... does it look like a Gaussian? AFAIK, there's no statistical basis for any claims that a strategy, fund, or person can consistently beat the indices over more than one business cycle (crudely, 5-10 years). Oh, and index funds have much lower MERs!
There is nothing conspiracy theory-ish about that: its actually happened on a number of occasions and in the 20s (I think) it was a pretty common thing. There are two variations:selfAdjoint said:I hope this is not too conspiracy theory-ish.
From some stock dealings I had back in the 60's and 70's I concluded that there is a small group of Wall Street insiders who run deliberate bubbles every year. They make their money by taking it away from suckers who are led to invest in the bubble. The evidence for this is that every year there is a hot group of penny stocks that soar for a while, but only one of them reaches a high peak ( though for no good reason), then in the Fall they drop.
Nereid said:Plot the distribution of those who 'beat the index' ... does it look like a Gaussian? AFAIK, there's no statistical basis for any claims that a strategy, fund, or person can consistently beat the indices over more than one business cycle (crudely, 5-10 years). Oh, and index funds have much lower MERs!
If your point is that if you can't afford to lose what you're investing, don't do it, otherwise it could be upsetting, you're right.Charles Brough said:My real point is that the stock market is an emotional ride and anyone who is not able to master that is in for a miserable ride.
charles
Slight nitpick: over the short term, an index fund doesn't look all that exciting, but over the long term you really can make an enormous amount of money. But I mean looooooooooooong term: 50+ years of safe investing can turn a frugal hermit cashier into a millionaire (you read about these about once a year).Evo said:A lot of people are in long term stock investment and don't worry about small fluctuations, they also realize they're not likely to make a lot of money either.
Catch: if someone changes a stock from a "hold" to a "buy" they've already bought it and are hoping you will buy it to pump up the price. So its already too late for you to profit much. Better to buy a solid stock that had a bad quarter making everyone knee-jerk sell.Pengwuino said:One thing to note is that a lot of the stock market is based on speculation and big brokerage houses. If a stock is in a sense, "chosen" by a brokerage firm, the firm will buy enormous amounts of its stock. This will boost the prices because people will think the firm believes the company will do well.
steven187 said:I just wanted to know we have so many analysts in this world, consuming so much time analysing all these existing companies, is it in any sanario really possible to estimate the future stock price of any company using the methods they use to analyse these companies, or are they seriously wasting there time, one thing that's seems to amaze me is that investment banks cut out a big piece of there revenue to pay these analysts, and all these analyst do is estimate stock prices, and each analyst has a different estimate from one another,so is the stock market random or can it be predicted?
juvenal said:These issues are still being carefully scrutinized by academicians.
This is a very good article by John Cochrane, author of a graduate financial economics textbook called Asset Pricing. It's pretty good at covering some fairly recent academic studies.
http://gsbwww.uchicago.edu/fac/john.cochrane/research/Papers/ep3Q99_3.pdf
Also, books by academicians like Andrew Lo of MIT (Non-Random Walk Down Wall Street, and Econometrics of Financial Markets) are worth checking out. The first is probably better suited for a layperson.
A non-expert, as in "clergy and laity."steven187 said:what is a layperson?
The stock exchange is a marketplace where stocks, or shares of ownership in a company, are bought and sold. It allows companies to raise capital by selling stocks to investors, and investors can make money by buying stocks at a lower price and selling them at a higher price. The stock exchange works through a network of brokers, who act as intermediaries between buyers and sellers, and an electronic trading system that matches buy and sell orders.
Investing in the stock market can provide potential for long-term growth and higher returns compared to other investment options. It also allows individuals to own a small part of a company and potentially benefit from its success. Additionally, dividends may be paid out to shareholders, providing a source of passive income.
Choosing which stocks to invest in can be a daunting task, but it is important to do thorough research on the company, its financial health, and its industry before making a decision. It is also recommended to diversify your investments by choosing stocks from different industries and companies of different sizes.
As with any investment, there are risks involved in investing in the stock market. Stock prices can be volatile and can fluctuate based on various factors such as economic conditions, company performance, and market trends. There is also the risk of losing some or all of your investment if the stock price decreases. It is important to carefully consider and manage these risks before investing.
To get started with investing in the stock market, it is important to first educate yourself on the basics of the stock market and different investment strategies. You can also seek the advice of a financial advisor to help you create a personalized investment plan. Once you are ready to invest, you can open a brokerage account and start buying stocks. It is important to continuously monitor your investments and make adjustments as needed.