Finances, Stock Market, Money Market, Mutual Funds, Investments, Savings, etc.

flowerbug

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ok. so let's assume you've never done anything at all with the stock market. what is it?

the simple answer is that it is indeed a market where people have used various forms of technology over the years to exchange chunks of companies.

you say "What!? How are they selling and buying chunks of companies?" :)

this is where it gets fun. different states have different laws, but in the end what you are dealing with is that some people get together and decide to set up a business. they put money into it and make things to sell or whatever. if you ever have seen the word widget go flying by in a conversation it was probably first used by people trying to talk about a fictional company that made them. eventually they have profits or losses and they keep track of it all for accounting and to pay the workers and also to pay the taxes.

note though we've not yet done anything with stocks yet. we're just talking about a company. eventually, they get to the point where they think that they can expand production and make more money so they need to get money to expand. there are different ways of getting more money and one way is to borrow it from a bank or from other investors. all of these investors want a chunk of the business in return. a way for the original owners to keep some of the company for themselves but to also sell a part of it is to issue shares in the company that are worth so much money and they then sell the rest to the banks or investors.

the net worth of the company (assets - liabilities) is hopefully positive, but sometimes it isn't at first. people put money in but they haven't made anything yet. it takes risk to give people money and not be sure you'll get anything in return. the hope for the investors is that eventually they'll be able to sell their stock at a gain. the other longer term hope is that the company gets going well enough that the company can return even more money in the form of dividend payments.

a specific and easy example would be Joe's Worm Farm (i had to do this :) ):

Joe and friends decide they want to do this for a business. they set up their place and get the proper paperwork done with the state and the feds. all squared away with the right numbers and licenses and whatever else they need. they put in $100 bucks to buy some pails, worms, bedding and covers and they have a small place they rent to keep them. there's no shares yet. but eventually they decide that they have the potential to make some real money growing worms so they approach investors to give them more money. the investors agree as long as they get a chunk of the company so the owners of Joe's Worm Farm set up things so that they keep ownership control of the company by creating 1000 shares and they give the investors 400 of them and keep 600 for themselves.

what is the value of those shares? each one is divided into the net worth of the company. so if the company has a net worth of $2000 dollars before the investors give them more money then each share is worth about $2.

i'm greatly simplifying things here but trying to get across that this isn't really a tough concept. in the real world versions though the accounting is more complicated, there are plenty of rules and regulations about what an asset and liability are and how expenses, profits and all sorts of other things have to be taken into account. it keeps the lawyers and accountants busy for sure. but back to Joe's and what the stock market is.

at first for small companies they normally aren't going to show up on a big stock market because they don't have enough money and also because they're just not big enough. so a few years later when Joe's takes over a bigger part of the market for worms then perhaps they will consider doing what is called Going Public or having an IPO (initial Public Offering). by this time they may have issued a lot more shares and gotten a lot more investments from the banks or others. but they want to bring in even more money for expansion. so they go through yet more paperwork and file to do the IPO and this is where the stock brokerages and banks will get so many shares and they go around and try to find people to buy them and then on the day the company goes public then the shares are trade on the market and are no longer limited to private exchanges. this is where most regular people finally can buy and sell chunks of Joes. by then the initial investors may be history or they may stick around hoping that Joes keeps going up and the shares they own will keep increasing in value.

the stock market itself is just like any other auction, you have people who want to buy and people who want to sell and the market acts as the go-between and the gathering space where people know to look. as time has gone on this has gone from the older times when people used markers on slates or even things like shells and beans to keep track of what was going on, then it was paper and ledgers and now it's computers. i can tell you that it is very nice now to not have to deal with papers but you do want to keep your eye on your accounts.

you can hire a broker to recommend stocks and even pay them a commission for providing the service and they will do the trades for you and you can even just give them full control and leave it all up to them if you trust them that much.

i've never been that trusting. i have bought my own stocks through a discount broker and that means they don't call me trying to sell me things i don't want and that also means that if i screw up it's my own fault. i'm good with that. :)

ok so you may hear that it is a good idea to diversify and that is indeed a good thing in that by doing that you spread the risk of any one company going broke out across more than one company. you can also buy what are called mutual funds where the fund does all the selecting and trading of the stocks and they take a fee for doing that and in exchange you get to not worry about any specific companies. there are also funds which try to follow specific market indexes like the Dow Jones Industrial Average or the Standard and Poor's 500 index. these are both interesting and i have a big chunk of my retirement money which is in a fund which aimed at following the S&P500. i also have another chunk of money which is in a global fund (which hasn't done as well). then i also have some individual stocks which i buy (and sometimes sell - but i'm not an active trader so i'm mostly conservative and don't play games in the market). which gets us to the next topic.

what is selling short?

selling short is when you think a stock is going down (that is the current price looks too high and you think the stock price will fall). so you borrow the shares and immediately sell them and put all that money into your pocket. since you have borrowed them at some point you will have to buy them back to return to whoever you got them from. there are some other things too involved but we'll skip that for the moment to keep it more simple. :) but the ultimate goal is to make money so you want to buy them back for less than what you put in your account. so if the price has fallen the difference will be your profit. it's a pretty risky thing to do. i've never done it myself. the risk is that if you are wrong and the price of the stock goes up. this means that you will have to at some time buy back the stock for more money than you got for it when you borrowed it and sold it. the upside is much bigger than the downside (which is 0). so to me it's more risk than i ever want to take. the other thing that happens is that when the stock goes up your brokerage might ask you to put more money into your account to cover this change in circumstances, because they don't want to lose money either. so it can be quite a stressful thing because in the case where the number of shares are not a lot or for some reason people don't want to sell them then that can drive the price up too so you get what is called a short squeeze. everyone who sold short expecting the stock to go down all of a sudden have to find shares to buy because the price has gone up and that means the demand for the stock is also going to go up even more so it can feed back on itself and really clobber the people who sold short.

wow, this gets long. sorry if i've put too much detail in here. if it's not clear ask questions. :) i see i made a few mistakes so those i've fixed. no promise to be perfect here. there's a lot more details to learn as you go...
 
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FarmerJamie

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for those who are interested in that topic you can search for it on-line.

if you want to talk about what a stock is and what short selling is then i'll greatly enjoy that much more.

try to keep political issues out of this please.
This is not political, it's a fact on what some of the big brokers are doing. It's important to know how these players act. Last year there was a run on crypto currency, there were issues with a particular broker throttling sales. It took 5 days for a transaction to clear. Not rumor, fact, we experienced it.

Have no clue why you would say this is political. A personal investor can lose their lunch with some of these bad actors
 

FarmerJamie

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A critical component of shorting a stock is there is a date on which you need to returned the "borrowed" stock. That due date is what drives the squeezes.

Conceptually, it is similar to commodity trading where you promise to buy or sell a fixed number of commodity product units (e.g., bushels of corn) at a specific time.
 

Trying2keepitReal

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Not sure if this is the right thread, but what about investing in silver, gold, gems, junk coin (the pre-65 stuff) etc. That is what is expected to be the currency if/when SHTF, not paper money. Is this something to truly consider, how do you know where to buy, what are the best items to get, etc
 

flowerbug

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A critical component of shorting a stock is there is a date on which you need to returned the "borrowed" stock. That due date is what drives the squeezes.

Conceptually, it is similar to commodity trading where you promise to buy or sell a fixed number of commodity product units (e.g., bushels of corn) at a specific time.

there is no due date on a short sale that i'm aware of. note i did say i was simplifying and not saying everything but what you may be thinking of is the dividend pay dates that the borrower does have to cover those amounts to pay to the person they borrowed the shares from.


note that even if the above link is pretty good it doesn't mention dividend payments so they've even missed some details.

or perhaps you are thinking of options which are time limited.
 

flowerbug

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I’m lost as to why that’s a political statement?

i was referring to his funny story in his previous post (sorry i did not make that clearer).

as to the issue of GameStop and brokerages and strange things happening, there's more than one side to that story and it's not simple.

if you are investing in the market and putting more money in than you are willing to lose you've stepped beyond what i consider a reasonable expectation. there are laws and regulations and insurance even for those who invest in regulated securities and then there are people who want to do things that are more risky. my opinion for sure along with that a beginning investor should probably not be shorting stocks.

the problems that many people had were with a specific brokerage that was new. they screwed up in various ways. i'm not sure it has been fully resolved and i'm not sure the full details are available either. no matter what i think the point to learn is to not put your money into a new brokerage that doesn't have some experience behind it and also to not get into a hot trend unless you're willing to risk your whole investment (and in the case of shorting stocks it can go beyond your initial investment).
 

flowerbug

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This is not political, it's a fact on what some of the big brokers are doing. It's important to know how these players act. Last year there was a run on crypto currency, there were issues with a particular broker throttling sales. It took 5 days for a transaction to clear. Not rumor, fact, we experienced it.

Have no clue why you would say this is political. A personal investor can lose their lunch with some of these bad actors

buyer beware is a common expression from days of old. my reference to political was the other story you mentioned. sorry for not being clearer.
 

flowerbug

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Not sure if this is the right thread, but what about investing in silver, gold, gems, junk coin (the pre-65 stuff) etc. That is what is expected to be the currency if/when SHTF, not paper money. Is this something to truly consider, how do you know where to buy, what are the best items to get, etc

collectibles, gems, coins can all be ok to invest in. i'm not big on any of those myself. i'm also not big on gold, silver as commodities. i do have some 1965 and earlier silver coins but i just keep those when i come across them. i do like wheat pennies, but i've not gotten serious about those in a long time. i don't have a huge bent now to get back into them. it's hard to find good deals. brokerages are not in the business to give away money or to not make a profit. so you have to take that into account. and also conversion fees or commissions that some will charge means that it really isn't as liquid as you'd want it to really be.

my own take is that i'm ok with the currencies and accounts that i have and that i don't want to have to find someone to buy and sell a commodity for me nor do i want to hold any of them myself in large amounts. i'm not that worried about the SHTF because if it happens everyone else is going to be in the same boat and we'll all have to figure it out. i don't really think that the financial system is in danger of collapse nor am i worried that inflation will ruin things forever. it's a temporary thing that can go on for a few years but it will likely be resolved and come back down again.

while currency valuations in the bank accounts won't likely keep up with inflation you probably will be able to keep up by investing in a broad indexed stock fund if you do it over a long enough period of time. i don't promise anything though. i'm not here to advise people about specific investments. i'm here to talk about the various kinds there are and to talk about the issues of investing and thinking about what it is for and why and how, but people have to make their own decisions about how much risk they want to take and what they want to put into various things.

gems are so specialized that i'm not qualified at all to talk about them. same for when you want to talk about specific coins.

where to buy? a reputable dealer who will give you good exchange rates because that is where you'll get eaten alive if you do a lot of exchanging. me, nobody i trust around here and no reason for me to do it. gold coins. some can be purchased directly from the mint or governmental agencies and others who make the coins.

i'm not at all a big follower of that kind of thing. i prefer to put my money into companies by buying stocks and mutual funds which are on-going and not fixed pieces of metal. the appeal of a pretty coin is nice, but i'd rather put my money into living and breathing people and minds that are seeking to do something and creating things or fixing things or learning new knowledge or exploring.

others here probably have a lot more experience with this sort of topic than i do. :)
 

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I don't play in the stock market. (Period). The reason is simple... I don't like money, it creates way to many problems, 1 Timothy 6:10. But I'm following this thread because I do like learning.

I like to follow but not invest in commodities. To me commodities seem to be good indicators of what real prices I will end up paying for foods and products (up or down). Common stock as in companies is where it gets very confusing to me...

Anyways, I doubt I'll have much of anything to contribute but I'm sure I'll learn a lot 👍

The commodity for me to watch today is wheat. Although midday still, look at the mountain chart, pretty crazy hu? How will this impact the prices of breads? I guess we'll find out soon enough...

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Jesus is Lord and Christ 🙏❤️🇺🇸
 
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