Part I.I - What is stock market?
When we talk about the stock market, the first things that come to most people mind probably are Wall Street, various abbreviations and numbers displayed in green or red on the boards, or a place where people can become rich or poor in a short period of time. But what exactly is it?
Before we talk about the stock market, let us first discuss about stocks.
A stock represents an actual company engaged in legitimate business activities. When a company requires additional capital to fund its operations, rather than approaching a bank, it can turn to the stock market to raise money from the public by selling a portion of ownership as shares. These shares divide the ownership.
Think of it like a small company you might establish with friends or relatives, starting with just a couple of owners. In the simplest scenario, both owners possess equal parts of the company, each with 50% ownership. If there are three founders, each holds 33.33% ownership. For larger companies, numerous partners might be involved, resulting in a more intricate ownership structure—ranging from dozens to probably even hundreds of shareholders.
When a company is listed on the stock market, its ownership is dispersed among the public, leading to thousands or even tens of thousands of individual shareholders or more. Nevertheless, shares aren't split simply to match the number of owners. Since shares can be traded and/or exchanged, they are usually divided into much smaller scale to enhance liquidity.
In short, it means when we purchase a share, we are acquiring a fragment of the company and a corresponding portion of ownership. Whoever owns more than 50% of the shares essentially owns the company. In another case, whoever owns the share, although less than 50%, but considered the biggest portion, bigger than any others', he is considered as the major holder.
Over time, as the company grows bigger, generates more profit, and offers great dividends to all shareholders, those who notice such performance wish to become part of it. To achieve this, they need to purchase shares from existing owners. The question then becomes: Will these owners be willing to sell? If they are, will they sell at the same price they initially bought the shares for? If not, what would the selling price be?
The process of transferring ownership through the trading of shares occurs on the stock market. The value of each share is primarily determined by the interplay between market demand and supply. If the company perform so well that attracts significant interest (high demand), the price of that stock will rise (green). Conversely, if the company perform badly, the current shareholders no longer want to hold their shares, they might sell them out at discounted prices (red) (high supply).
Above are the simplified explanations (I hope) about stocks, the market, and why the numbers are blinking in green and red. If you are interested in some business, you might not need to found one yourself. Consider exploring similar one(s) in the stock market and buy them up instead. This could be a valuable shortcut to achieving your goals!"
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