Stock Market — History & Intuition

A stock market, equity market or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses.

Let me simplify it. This whole thing started way back in the 19th century.

19th century — The monopoly Era :

One person owned the whole Industry.

Andrew Carnegie — Steel
Cornelius Vanderbilt — Railroad
John Rockefeller — Oil

This Era was also called the “Gilded Era” . These men used way too many unlawful means to acquire the industries. Though the Outer showcasing was top notch, it was completely rotten deep underneath . This created too much of harm to the general public, People were being underpaid and were being lied to. The rich were getting richer and the poor poorer.Hence in 20th century . The public was allowed to buy shares i.e. IPO was born.
And since shareholders/people love to make more money. They started investing.

A) Getting investors into the company :

Initial Public Offering — IPO : An offer put to the public and who ever wishes can invest in the company. — This means the so called investors pay a certain amount and own a Part/Share of the business.

The owner can sell these shares and get money on their hands and use that to upgrade the company. The company can be expanded to other regions. The money can be put into research and new products can be built. And This will bring more profits for the company.
Or
The owner can choose pay back the investors in terms of “Dividends” — This is optional unless they ask . But since the investors receive a higher amount than the principle due to profits of the company , it gives them and other Non-Investors the motivation to invest more money into the company which means more profits again.

Some non-Investors or people on seeing the company’s growth can directly buy shares from the shareholders of the company. Even for a higher amount than principle if situation demands.

So basically people buying and selling pieces of companies based on how much they think the company would grow in the future compiles of what stock market is.

The New York Stock Exchange is the biggest SE . founded in 1792. And complied of companies like IBM, P&G, Walmart etc.. INDIA’s BSE- 1875.
Another virtual platform called Nasdaq was found in 1971. Apple, Facebook & other tech companies are included. INDIA’s NSE- 1992.

INDEXES : A combination of various share prices to come up with one clean number. The selected shares are highly specific and limited .
USA — S&P 500 — takes 500 companies into account — INDIA: Nifty — 50
USA- DOW — Takes 30 — INDIA — Sensex — 31

Factors that affect people while investing in stocks:

Buying :
1. If the CEO makes Good decisions.
2. A new Product is introduced.
3. The marketing team is doing a great job.
4. The company decides to merge with another company.

Selling :
5. Facts like If there is any ill issues that were faced by the company . like any harmful effects affecting people.
6. Scandals or rumors or stories.
7. Often fake hypes are given to the people taking into considerations few major companies and making them believe the whole industry is gonna sky rocket. but a bubble cannot always expand and will burst at a given point — Snowballing effect. 1990s — Internet companies.

So when the bubble bursts — It not only harms investors or the company, It harms the whole economy. Due to the fall of companies due to any external reason for that matter will lead to unemployment, The companies will go underground , The pensions will face a downfall & the whole economy is going to crash.

So if the company gets more money, more growth, more profits, more employment opportunities. And also more money to give back the share holders in case they wanna sell.

Directors/Executives became trustees/stewards of the companies which served share holders, bond holders, supplier, employee & the community.

Warren Buffet — investing methods :

Value Investment.
Careful Analysis of the company.
Looking at balance sheets.
Looking at growth of business.

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Tip : Buy Sensex low cost Index Fund : Divide your amount accordingly and invest in all companies included in Sensex.

John Maynard Keynes:
Ask the public on which stock out of a bunch that they think is a good buy & would invest in And also to rank them in order of high to low.
Take in all the responses . The Most picked stocks are the stocks that most number of people are likely to invest in.
So if more of them invest that means the company will gain more resources and will make more profits and dividends, so this is the company you should invest in. By the people , For the people. Unless the company doesn’t screw up with the money.

Suppose the Industry is booming. Due to the lack of resources the prices of the resources will sky rocket through the roof and economy will be harmed.

Friedman Doctrine — A social Responsibility of a business is to increase its profits — editorial

Capitalism — Economic system based on the private ownership of the means of production and their operation for profit.

“Since the companies are owned by shareholders, the only obligation/commitment of the company was to make profits “

The company CEO’s were not focused on getting the stock price high as that didn’t matter to them much.
But Friedman advised every company to tie their shareholders money to the money of the CEO and other officials and to make it almost equal.
This way the official had no other option but to increase stock price as their own money was at stake. Even if it meant for consequences to be harmful for the employees ,customers or even for the downfall of the company in long term.

This made the CEO’s invest more inn areas which would bring the stock prices high. Like :
- Cutting costs .
- Buying back a huge amount of their own shares to decrease the external supply from people and having assurance that the money is gonna stay in the company as he wont sell and hence artificially bump up the stock price.

2007–16 :
55% of the companies were owned by their own owners. 39% was owned by shareholders and went back to them as dividends. Only 6% was left for expansion , Increasing salary or develop new products for long term benefits.
Obviously officials of the company weren’t ready to put in their own profited amount for the company.

Hedge fund — Private organisation which purely focuses on maximum returns/dividends with minimum risks i.e.
Focusses on making the company increase stock value.
Way to increase dividends — cut costs in all areas. Minimize the amount put into the production. This will conserve high stock value as the money is not being spent.

Concession — demand to a demand
Companies are forced to do short term investments instead of long term due to fact that stocks have to be increased else they will lose money.

Firing Workers, Lowering wages, closing factories will affect the economy and long term growth of the comp but short term goals or the stocks will boom.

So the CEOs pay check will always be on the higher end due to this policy. but the average non investor will be jobless or facing financial issues.
Therefore ,
The rise in stock market will rise the financial inequality of common people.

But do the shareholders know this? Yes.
Do they care? As long as there is nothing affecting them, and they are getting the profits, Care is the one word that they don’t care about.